UNITED
STATES




SECURITIES
AND EXCHANGE COMMISSION




WASHINGTON,
D.C. 20549




FORM
10-Q




(Mark
One)




xQuarterly Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934




For
the quarterly period ended March 31, 2008




or


o   
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934




Commission
File Number 000-51368




TBS
INTERNATIONAL LIMITED




(Exact name of registrant as specified
in its charter)


Bermuda
            98-0225954(State
      or other jurisdiction of
              incorporation
      or organization)
            (IRS
      Employer Identification No.)Commerce Building,
              Chancery
      Lane,
              Hamilton
      HM 12, Bermuda(Address
      of principal executive offices)(441)
      295-9230(Registrant's
      telephone number, including area
code)




N/A(Former
      name, former address and former fiscal year, if changed since last
      report)






Indicate
      by check mark whether the registrant (1) has filed all reports
      required to be filed by Section 13 or 15(d) of the Securities
      Exchange Act of 1934 during the preceding 12 months (or for such shorter
      period that the registrant was required to file such reports), and
      (2) has been subject to such filing requirements for the past 90
      days.                                                                             Yes x  No  ̈Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, a non-accelerated filer, or a smaller reporting
      company. See the definitions of “large accelerated filer," "accelerated
      filer” and "smaller reporting company" in Rule 12b-2 of the Exchange
      Act.
              
              Large
      Accelerated Filer  ̈  Accelerated
      Filer x
      Non-accelerated Filer  ̈ Smaller
      Reporting Company oIndicate
      by check mark whether the registrant is a shell company (as defined by
      Rule 12b-2 of the Exchange
      Act).           Yes  ̈  No x





As
      of  May 5, 2008, the registrant had outstanding 14,448,996 Class A
      common
      shares,par value
      $0.01 per share, and 13,404,461 Class B common shares, par value $0.01 per
      share.
















TBS
      INTERNATIONAL LIMITED2008
      FORM 10-QTable of ContentsPagePART
      I:  FINANCIAL INFORMATIONItem
      1
            Financial StatementsConsolidated Balance
      Sheets as ofMarch31, 2008
      (Unaudited)andDecember31,
      2007
            
            3Consolidated
      Statements of Income (Unaudited) for the three months ended March 31, 2008
              and March 31,
      2007
            
            4Consolidated Statements of
      Cash Flows (Unaudited) for the three months ended March 31,
      2008
              and March 31,
      2007
            
            5Consolidated
      Statement of Changes in Shareholders' Equity (Unaudited) for the three
      months
              ended March
      31, 2008
            
            6Notes to Consolidated
      Financial Statements
            
            7Item
      2
            Management’s Discussion
      and Analysis of Financial Condition and Results of
      Operations
            
            20Item
      3
            Quantitative and
      Qualitative Disclosure About Market Risk
            
            33Item
      4
            Controls and
      Procedures
            
            33PART II:  OTHER
      INFORMATIONItem
      1
            Legal
      Proceedings
            
            33Item
      1A
            Risk
      Factors
            
            34Item
      2
            Unregistered Sales
      of Equity Securities and Use of Proceeds
            
            34Item
      3
            Defaults Upon Senior
      Securities
            
            34Item
      4
            Submission of Matters
      to a Vote of Security Holders
            
            34Item
      5
            Other
      Information
            
            34Item
      6
            Exhibits
            
            34Signatures
            
            36





















2


Part
I.    FINANCIAL INFORMATION


Item 1.    Financial
Statements




TBS
INTERNATIONAL LIMITED AND SUBSIDIARIES




CONSOLIDATED BALANCE SHEETS


(in
thousands, except par value per share)




March
      31,
              
              
              December
      31,2008
              
              
              2007(unaudited)AssetsCurrent
      assetsCash
      and cash equivalents
              
              $
              54,867
              
              
              $
              30,498Charter
      hire receivable, net of allowance of $500 in 2008and
      $443 in 2007
              
              
              43,303
              
              
              
              30,081Fuel
      and other inventories
              
              
              13,778
              
              
              
              11,123Prepaid
      expenses and other current assets
              
              
              6,087
              
              
              
              7,742Advances
      to affiliates
              
              
              3,515
              
              
              
              918Total
      current assets
              
              
              121,550
              
              
              
              80,362Deposit
      for vessel purchase
              
              
              3,030
              
              
              
              14,836Fixed
      assets, net
              
              
              610,834
              
              
              
              444,082Goodwill
              
              
              8,426
              
              
              
              8,426Other
      assets and deferred charges
              
              
              13,418
              
              
              
              11,407Total
      assets
              
              $
              757,258
              
              
              $
              559,113Liabilities
      and Shareholders' EquityCurrent
      liabilitiesDebt,
      current portion
              
              $
              74,068
              
              
              $
              22,699Accounts
      payable
              
              
              10,583
              
              
              
              11,723Accrued
      expenses
              
              
              30,976
              
              
              
              36,713Voyages
      in progress
              
              
              9,709
              
              
              
              7,016Advances
      from affiliates
              
              
              251
              
              
              
              467Total
      current liabilities
              
              
              125,587
              
              
              
              78,618Debt,
      long-term portion
              
              
              262,682
              
              
              
              157,467Other
      liabilities
              
              
              6,929
              
              
              
              3,465Total
      liabilities
              
              
              395,198
              
              
              
              239,550COMMITMENTS
      AND CONTINGENCIES (Note 12)Shareholders'
      equityCommon
      shares, Class A, $.01 par value, 75,000,000authorized,
      14,424,496 shares issued and outstanding in 2008 and 14,350,996 shares
      issued
                and
      outstanding in 2007
              
              
              144
              
              
              
              143Common
      shares, Class B, $.01 par value, 30,000,000authorized,
      13,404,461 shares issued and outstanding
              
              
              134
              
              
              
              134Warrants
              
              
              21
              
              
              
              21Additional
      paid-in capital
              
              
              89,020
              
              
              
              88,530Accumulated
      other comprehensive (loss)
              
              
              (6,269
              )
              
              
              (2,897
              )Retained
      earnings
              
              
              279,010
              
              
              
              233,632Total
      shareholders' equity
              
              
              362,060
              
              
              
              319,563Total
      liabilities and shareholders' equity
              
              $
              757,258
              
              
              $
              559,113




The
accompanying notes are an integral part of these consolidated financial
statements.


Table of Contents
 3


TBS
INTERNATIONAL LIMITED AND SUBSIDIARIES




CONSOLIDATED STATEMENTS OF INCOME


(in
thousands, except per share amounts and outstanding shares)






Three
      Months Ended March 31,2008
              
              
              2007(unaudited)
              
              
              (unaudited)RevenueVoyage
      revenue
              
              $
              98,160
              
              
              $
              51,939Time
      charter revenue
              
              
              32,726
              
              
              
              18,069Other
      revenue
              
              
              690
              
              
              
              318Total
      revenue
              
              
              131,576
              
              
              
              70,326Operating
      expensesVoyage
              
              
              32,418
              
              
              
              19,181Vessel
              
              
              23,434
              
              
              
              17,557Depreciation
      and amortization of vesselsand
      other fixed assets
              
              
              13,493
              
              
              
              8,414General
      and administrative
              
              
              11,767
              
              
              
              7,180Loss
      from sale of vessel
              
              
              
              
              
              
              779Total
      operating expenses
              
              
              81,112
              
              
              
              53,111Income
      from operations
              
              
              50,464
              
              
              
              17,215Other
      (expenses) and incomeInterest
      expense
              
              
              (3,437
              )
              
              
              (2,772
              )Loss
      on extinguishment of debt
              
              
              (2,318
              )Interest
      and other income (expense)
              
              
              669
              
              
              
              (39
              )Total
      other (expenses) and income, net
              
              
              (5,086
              )
              
              
              (2,811
              )Net
      income
              
              $
              45,378
              
              
              $
              14,404Earnings
      per shareNet
      income per common shareBasic
              
              $
              1.62
              
              
              $
              0.51Diluted
              
              $
              1.62
              
              
              $
              0.51Weighted
      average common shares outstandingBasic
              
              
              28,044,310
              
              
              
              28,013,310Diluted
              
              
              28,080,071
              
              
              
              28,035,881









The
accompanying notes are an integral part of these consolidated financial
statements.





Table of Contents
 4




TBS
INTERNATIONAL LIMITED AND SUBSIDIARIES




CONSOLIDATED STATEMENTS OF CASH FLOWS


(in
thousands)





Three
      Months Ended March 31,2008
              
              
              2007(unaudited)
              
              
              (unaudited)Cash
      flows from operating activitiesNet  income
              
              $
              45,378
              
              
              $
              14,404Adjustments
      to reconcile net income to net cashprovided
      by operating activitiesLoss
      on sale of vessel
              
              
              -
              
              
              
              779Depreciation
      and amortization
              
              
              13,493
              
              
              
              8,414Loss
      on change in value of interest swap contract
              
              
              92
              
              
              
              -Amortization
      and write-off of deferred financing costs
              
              
              2,529
              
              
              
              217Non
      cash stock based compensation
              
              
              491
              
              
              
              92(Income)
      loss in joint venture
              
              
              (322
              )
              
              
              163Changes
      in operating assets and liabilities(Increase)
      decrease in charter hire receivable
              
              
              (13,222
              )
              
              
              8,102(Increase)
      decrease in fuel and other inventories
              
              
              (2,655
              )
              
              
              699Decrease
      in prepaid expenses and other current assets
              
              
              1,655
              
              
              
              2,981(Increase)
      in other assets and deferred charges
              
              
              (639
              )
              
              
              (692
              )(Decrease)
      in accounts payable
              
              
              (1,140
              )
              
              
              (771
              )Increase
      (decrease) in accrued expenses
              
              
              (5,737
              )
              
              
              (7,560
              )Increase
      (decrease) in voyages in progress
              
              
              2,693
              
              
              
              (2,183
              )(Decrease)  in
      advances from/to affiliates, net
              
              
              (2,814
              )
              
              
              (53
              )Net
      cash provided by operating activities
              
              
              39,802
              
              
              
              24,592Cash
      flows from investing activitiesProceeds
      on sale of vessels
              
              
              -
              
              
              
              52,314Vessel
      acquisitions / capital improvement costs
              
              
              (165,409
              )
              
              
              (53,207
              )Deposit
      for vessel purchases
              
              
              (3,030
              )
              
              
              -Repayment
      (loans) made to joint venture
              
              
              500
              
              
              
              (200
              )Net
      cash (used) by investing activities
              
              
              (167,939
              )
              
              
              (1,093
              )Cash
      flows from financing activitiesRepayment
      of debt principal
              
              
              (125,915
              )
              
              
              (74,782
              )Proceeds
      from debt
              
              
              282,500
              
              
              
              65,000Payment
      of deferred financing costs
              
              
              (4,079
              )
              
              
              (1,510
              )Reduction
      of obligations under capital leases
              
              
              -
              
              
              
              (977
              )Net
      cash provided by (used in) financing activities
              
              
              152,506
              
              
              
              (12,269
              )Net
      increase (decrease) in cash and cash equivalents
              
              
              24,369
              
              
              
              11,230Cash
      and cash equivalents beginning of period
              
              
              30,498
              
              
              
              12,007Cash
      and cash equivalents end of period
              
              
              54,867
              
              
              $
              23,237Supplemental
      cash flow information:Interest
      paid, net of amounts capitalized
              
              $
              2,537
              
              
              $
              2,628






Noncash
      Investing activities:For
      the three months ended March 31, 2007, the proceeds on the sale-leaseback
      of the vesselsLaguna
      Belle andSeminole Princess excludes the noncash portion of $5.5 million,
      which was retained by the buyer/lessor as a deposit on the bareboat
      charters.










The
accompanying notes are an integral part of these consolidated financial
statements.





Table of Contents
 5


TBS
INTERNATIONAL LIMITED AND SUBSIDIARIES




CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS'
EQUITY


(in
thousands, except shares)


(unaudited)







AccumulatedOther
      Com-Additional
              
              
              
              prehensiveCommon
      Shares
              
              Warrants
              
              Paid-in
              
              Retained
              
              IncomeShares
              
              Amount
              
              Shares
              
              Amount
              
              Capital
              
              Earnings
              
              (Loss)
              
              TotalBalance
      at December 31, 2007
              
              
              27,755,457
              
              $
              277
              
              
              288,853
              
              $
              21
              
              $
              88,530
              
              $
              233,632
              
              $
              (2,897
              )
              $
              319,563Net
      income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              45,378
              
              
              
              
              
              45,378Unrealized
      loss on cash flow hedges
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (3,372
              )
              
              (3,372
              )Comprehensive
      income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              42,006Stock
      based compensation
              
              
              73,500
              
              
              1
              
              
              
              
              
              
              
              
              490
              
              
              
              
              
              
              
              
              491Balance
      at March 31, 2008
              
              
              27,828,957
              
              $
              278
              
              
              288,853
              
              $
              21
              
              $
              89,020
              
              $
              279,010
              
              $
              (6,269
              )
              $
              362,060


























The accompanying notes are an
integral part of these consolidated financial statements.




Table of Contents
 6




Note 1 — Basis of Presentation
  TBS
International Limited ("TBSI") and its subsidiaries (the "Company" "we" or
"our") are engaged in the ocean transportation of dry cargo offering shipping
solutions through liner, parcel, bulk and vessel chartering services.
Substantially all the related corporations of TBS are foreign corporations and
conduct their business operations worldwide. The accompanying unaudited
consolidated financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial
statements.  In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included.  Operating results for the three month period ended March
31, 2008 are not necessarily indicative of the results that may be expected for
the year ended December 31, 2008.
  The
consolidated balance sheet at December 31, 2007 has been derived from the
audited financial statements at that date, but does not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
  For
further information, refer to the consolidated financial statements and
footnotes thereto for the year ended December 31, 2007 included in TBSI's Form
10-K filed with the Securities and Exchange Commission on March 14,
2008.
  Reclassifications
  Certain
reclassifications were made to the consolidated financial statements for the
year 2007 to conform to the March 31, 2008 presentation. These reclassifications
did not impact net income.
 
 Note
2 — New Accounting Pronouncements
 
 In March
2008, the Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards ("SFAS") Statement No. 161, Disclosures about Derivative
Instruments and Hedging Activities - an amendment of FASB Statement No.
133 Accounting for Derivative
Instruments and Hedging Activities("SFAS 161"). SFAS 161
changes the disclosure requirements for derivative instruments and hedging
activities requiring enhanced disclosures about: how and why an entity uses
derivative instruments; how derivative instruments and related hedged items are
accounted for under Statement 133 and its related interpretations; and how
derivative instruments and related hedged items affect an entity's financial
position, financial performance, and cash flows. The Statement intends to
enhance the current disclosure framework in Statement 133 by requiring:
objectives for using derivative instruments and related hedged items be
disclosed in terms of underlying risk that an entity is trying to manage;
tabular presentation of the fair values, gains and losses of derivative
instruments; disclosure of credit-risk-related contingent features; and cross
referencing within financial statement footnotes. The Statement is effective for
fiscal years and interim periods beginning after November 15, 2008, with early
application encouraged. The
Company has early adopted SFAS 161 in the first quarter of 2008; refer to Note 8
Derivative Financial Instruments for adopted disclosures.
  In
December 2007, the FASB issued SFAS Statement No. 160 Noncontrolling Interests in
Consolidated Financial Statements - an amendment of ARB (Accounting Research
Bulletin) No. 51("SFAS 160"). The
Statement establishes accounting and reporting standards for entities (excluding
not-for-profit organizations) with outstanding noncontrolling interest in one or
more subsidiaries or that deconsolidate a subsidiary. The objective of SFAS 160
is to improve the relevance, comparability and transparency of financial
information that a reporting entity provides in its consolidated financial
statements. The standards require: ownership interests in subsidiaries held by
parties other than the parent be clearly identified and presented within equity
but separate from the parent's equity in the consolidated statement of financial
position; net income attributable to the parent and the noncontrolling interest
be identified and presented on the face of the consolidated statement of income;
changes in a parent's ownership interest while the parent retains its
controlling financial interest in its subsidiary be consistently accounted for
as equity transactions; any retained noncontrolling equity investment in a
former deconsolidated subsidiary be initially measured at fair value and that
any gain or loss on the deconsolidation of a subsidiary be measured using fair
value of the noncontrolling equity investment rather than the carrying amount of
that retained investment; and, entities provide sufficient disclosures that
clearly identify and distinguish between the interests of the parent and
noncontrolling owners. The Statement is effective for fiscal years, and interim
periods within those fiscal years, beginning on or after December 15, 2008. The
adoption of SFAS 160 is not expected to have a material impact on the Company's
consolidated financial statements.
  Table of Contents
 7
 In
December 2007, the FASB issuedSFAS Statement No. 141 (revised
2007),Business
Combinations ("SFAS 141(R)").  This statement establishes
principles and requirements for how an acquiring entity measures and recognizes:
the identifiable assets acquired; the liabilities assumed; any noncontrolling
interest in the acquiree; goodwill acquired, or a gain from a bargain purchase,
in its financial statements. SFAS 141(R) sets forth disclosure criteria to
enable a better understanding of the nature and effects of a business
combination. The Statement was revised to improve the relevance, and
comparability of financial statement information about business combinations and
their effect. This Statement applies prospectively to business combinations for
which the acquisition date is on or after the first annual reporting period
beginning on or after December 15, 2008. The adoption of SFAS 141(R) is not
expected to have a material impact on the Company's consolidated financial
statements.
  In
February 2007, the FASB issued SFAS Statement No. 159 TheFair Value Option for Financial
Assets and Financial Liabilities, Including an amendment of FASB Statement No.
115 ("SFAS 159").  SFAS 159 provides all entities with the
option to measure many financial instruments and certain other items at fair
value. If a company elects the fair value option for an eligible item, then it
will report unrealized gains and losses on those items at each subsequent
reporting date. SFAS 159 is effective for fiscal years beginning after November
15, 2007. Upon adoption, we did not elect the fair value option for any items
within the scope of SFAS 159 and, therefore, the adoption of SFAS 159 did not
have an impact on our consolidated financial statements.
  In
September 2006, the FASB issued SFAS No. 157 "Fair Value Measurements," (SFAS
157), which is effective for fiscal years beginning after November 15, 2007 and
for interim periods within those years.  This statement defines fair
value, establishes a framework for measuring fair value and expands the related
disclosure requirements.  This statement applies under other
accounting pronouncements that require or permit fair value
measurements.  The statement indicates, among other things, that a
fair value measurement assumes that the transaction to sell an asset or transfer
a liability occurs in the principal market for the asset or liability or, in the
absence of a principal market, the most advantageous market for the asset or
liability. SFAS 157 defines fair value based upon an exit price
model.
  Relative
to SFAS 157, the FASB issued FASB Staff Positions (FSP) 157-1 and 157-2. FSP
157-1 amends SFAS 157 to exclude SFAS No. 13, "Accounting for Leases," (SFAS 13)
and its related interpretive accounting pronouncements that address leasing
transactions, while FSP 157-2 delays the effective date of the application of
SFAS 157 to fiscal years beginning after November 15, 2008 for all nonfinancial
assets and nonfinancial liabilities that are recognized or disclosed at fair
value in the financial statements on a nonrecurring basis.
  We
adopted SFAS 157 as of January 1, 2008, with the exception of the application of
the statement to non-recurring nonfinancial assets and nonfinancial
liabilities.  Non-recurring nonfinancial assets and nonfinancial
liabilities for which we have not applied the provisions of SFAS 157 include
those measured at fair value in goodwill impairment testing and indefinite
lived intangible assets measured at fair value for impairment testing.
  Note
3 — Fuel and Other Inventories
  Fuel and
other inventories consist of the following (in thousands):
 
 March
      31,
                
                
                December
      31,Description
                
                2008
                
                
                2007Fuel
                
                $
                9,591
                
                
                $
                7,703Lubricating
      oil
                
                
                3,725
                
                
                $
                2,770Other
                
                
                462
                
                
                $
                650TOTAL
                
                $
                13,778
                
                
                $
                11,123
  Table of Contents
 8
 Note
4— Advances to / from Affiliates
  Advances
to / from affiliates, which are entities related by common shareholders, are
non-interest-bearing, due on demand, and expected to be collected or paid in the
ordinary course of business, generally within the year. The Company typically
advances funds to affiliates in connection with the payment of management fees,
commissions and consulting fees. Advances from affiliates originated primarily
from amounts due to affiliates for management fees, commissions and consulting
fees earned.
 
 
 Note
5 — Fixed Assets
  Fixed
assets consist of the following (in thousands):
  Description
                
                March
      31,2008
                
                
                December
      31, 2007Vessels
                
                $
                551,833
                
                
                $
                402,098Vessel
      improvements and other equipment
                
                
                57,077
                
                
                
                53,323Deferred
      dry docking costs
                
                
                16,167
                
                
                
                13,990Vessel
      construction in process
                
                
                85,213
                
                
                
                62,835Other
      fixed assets
                
                
                15,714
                
                
                
                13,513726,004
                
                
                
                545,759Less
      accumulated depreciation and amortization
                
                
                (115,170
                )
                
                
                (101,677
                )$
                610,834
                
                
                $
                444,082
 
 During
the quarter ended March 31, 2008, the Company took delivery of following six
vessels.
 
 New
                  
                  Former
                  
                  
                  
                  
                  
                  PurchaseVessel
      Name
                  
                  Vessel
      Name
                  
                  Delivery
      Date
                  
                  Vessel
      Type
                  
                  PriceOttawa
      Princess
                  
                  Wedellsborg
                  
                  March
      25, 2008
                  
                  Multipurpose
      tweendecker
                  
                  $
                  23,000Caribe
      Maiden
                  
                  Frijsenborg
                  
                  March
      11, 2008
                  
                  Multipurpose
      tweendecker
                  
                  
                  23,000Mohave
      Maiden
                  
                  Diasouzousa
                  
                  February
      19, 2008
                  
                  Bulk
      carrier
                  
                  
                  26,000Hopi
      Princess
                  
                  African
      Sanderling
                  
                  February
      15, 2008
                  
                  Multipurpose
      tweendecker
                  
                  
                  18,360Oneida
      Princess
                  
                  Gebe
      Oldendorff
                  
                  February
      11, 2008
                  
                  Bulk
      carrier
                  
                  
                  32,000Zuni  Princess
                  
                  Ypermachos
                  
                  January
      29, 2008
                  
                  Bulk
      carrier
                  
                  
                  26,000Total
                  
                  
                  
                  $
                  148,360
 
 The
deposit for vessel purchases represents deposits on vessels that we have
contracted to purchase but that have not yet been delivered. On February 19,
2008, we signed a Memorandum of Agreement and made a deposit of $3.0 million to
purchase the handimax bulk carrierAnthinoula for $30.3
million. The vessel, which will be renamedCanarsie Princess, is
expected to be delivered during the second quarter of 2008.
  Table of Contents
 9
 Note
6 — Accrued Expenses
 
 Accrued
expenses consist of the following (in thousands):
 
 March
      31,
                
                
                December
      31,Description
                
                2008
                
                
                2007Voyage
      and vessel expenses
                
                $
                26,158
                
                
                $
                26,826Payroll
      and related costs
                
                
                3,912
                
                
                
                9,353Commissions
                
                
                761
                
                
                
                379Cargo
      claims
                
                
                145
                
                
                
                155Total
                
                $
                30,976
                
                
                $
                36,713
 
 Note
7 — Financing
  The
Company's outstanding debt balances were as follows (in thousands):
  Interest
      Rate at
                  March
      31, 2008
                
                
                March
      31, 2008
                
                
                December
      31, 2007Bank
      of America - term credit facility
                
                
                
                $
                
                
                
                $
                50,446Bank
      of America - revolving credit facility
                
                
                
                
                
                
                
                
                70,375Bank
      of America - term credit facility,expires
      December 31, 2011
                
                
                6.00
                %
                
                
                142,500The
      Royal Bank of Scotland credit facility
                
                
                
                
                
                
                
                
                
                
                4,345The
      Royal Bank of Scotland credit facility,new
      vessel buildings,  expires December  31,
      2020
                
                
                4.45
                %
                
                
                45,000
                
                
                
                35,000Credit
      Suisse credit facility,expires
      December 12, 2017 and  February 19, 2018
                
                
                4.12
                %
                
                
                39,250
                
                
                
                20,000DVB
      Group Merchant Bank (Asia) Ltd credit facility,expires
      January 23, 2013
                
                
                6.35
                %
                
                
                75,000AIG
      Commercial Equipment Finance, Inc credit facilityexpires
      April 1, 2012
                
                
                5.00
                %
                
                
                35,000Debt
      balance
                
                
                
                
                
                $
                336,750
                
                
                $
                180,166
  The repayment of debt over the next
five years and thereafter is as follows (in thousands):
 
 2008
      (April 1, 2008 through December 31, 2008)
                
                $
                52,9262009
                
                
                74,0682010
                
                
                72,4362011
                
                
                65,6082012
                
                
                24,108Thereafter
                
                
                47,604$
                336,750
  Table of Contents
 10
 Bank ofAmericaCredit
Facility
 
 On March
26, 2008, the Company through its subsidiaries entered into a credit agreement
to amend and restate the existing Bank of America Credit Facility ("BA Credit
Facility"). The amendment increased the total syndicated Credit Facility to
$267.5 million from $160 million, increasing both the loan facility ("BA Term
Credit Facility") and the revolving credit facility ("BA Revolving Credit
Facility"). The BA Term Credit Facility was increased to $142.5 million from $70
million and the BA Revolving Credit Facility was increased to $125 million from
$80 million.
 
 The
Company made a full drawdown of $142.5 million on the amended BA Term Credit
Facility to pay outstanding principal and interest due on the existing Bank of
America credit facility, closing costs, financing costs, and for general
corporate purposes. No drawdown of the BA Revolving Credit facility was
made.
 
 The BA
Term Credit Facility is repayable over four years in 15 quarterly installments
of $9.5 million with the last installment due December 31, 2011. The
non-amortizing revolving credit facility is due March 26,
2012.  Interest on the Credit Facility is at the 30-day, 60-day, or
90-day Eurodollar LIBOR rate or the Base rate, as defined in the credit
agreement, as selected by the Company, plus a loan margin rate based on the
Company’s consolidated leverage ratio. The interest rate margin is initially
fixed at 2.25% and will become adjustable after September 30, 2008 but no later
than November 14, 2008, based on the consolidated leverage ratio at September
30, 2008. Once the margin becomes adjustable, it can vary quarterly in 0.50%
increments between four pricing levels ranging from 1.25% to 2.75
%.
 
 In
connection with the amendment and restatement of the credit facility, the
Company incurred deferred financing costs of $2.3 million.  Applying
the guidance of the FASB Emerging Issues Task Force issue 96-19 relating to Bank
of America term loan and 98-14 relating to Bank of America revolving credit
facility, $2.3 million of financing costs were charged to consolidated income
during the first quarter of 2008 under the caption "Loss on extinguishment of
debt" and $2.1 million is being amortized over the term of the BA Credit
Facility.
 
 The
amended BA Credit Facility is collateralized primarily by 25 of our vessels with
a net book value at March 31, 2008 of $287.2 million, as well as by TBSI’s
equity interests in the subsidiaries that own the vessels. Each subsidiary of
TBSI with an ownership interest in the collateralized vessels has provided an
unconditional guaranty and pledged any insurance proceeds received related to
the vessels.  The BA Credit Facility is guaranteed by TBSI and other
non-borrowing subsidiaries.
  The
amended BA Credit Facility agreement contains certain financial and
non-financial covenants. The non-financial covenants include customary
restrictions on the Company’s ability to incur indebtedness or grant liens, pay
dividends under certain circumstances, enter into transactions with affiliates,
merge, consolidate, or dispose of assets, and change the nature of its business.
The financial covenants require that we maintain certain fixed charge and
leverage ratios, as well as maintain tangible net worth within defined limits.
We are also required to maintain minimum cash and cash equivalent balances and
collateral coverage. In addition, the Credit Facility requires minimum
collateral coverage, restricts the payment of dividends and restricts leverage,
investment and capital expenditures without consent of the lender and requires
mandatory prepayment or delivery of additional security in the event that the
fair market value of the vessels fall below limits specified in the loan
agreement. At March 31, 2008, the Company was in compliance with all
covenants.
  The
Royal Bank of Scotland Credit Facility
 
 On
February 22, 2008, the Royal Bank of Scotland credit facility loan
collateralized by the vessel Wichita Belle was repaid.
This vessel is one of several vessels collateralizing the amended Bank of
America Credit Facility.
 
 Table of Contents
 11
 The
Royal Bank of Scotland Credit Facility - New Vessel Buildings
  On March
29, 2007, the Company entered into a credit agreement with a syndicate of
lenders led by The Royal Bank of Scotland plc for a $150.0 million term loan
credit facility (the "RBS Credit Facility") to finance the building and purchase
of six new Multi-Purpose vessels with retractable tweendecks.  The RBS
Credit Facility is made up of six $25.0 million individual term loans designated
individually as Loan A through Loan F.  The loans become available
through May 31, 2009, November 30, 2009, April 30, 2010, August 31, 2010, June
30, 2010 and October 31, 2010, respectively or such later date as agreed upon by
the lenders. Advances under the RBS Credit Facility will be drawn by the
borrowing subsidiaries in specified amounts upon the completion of the
milestones as shown in the table below:
  Loan
      A
                
                Loan
      B
                
                Loan
      C
                
                Loan
      D
                
                Loan
      E
                
                Loan
      FArgyle
                  Maritime
                  Corp.
                
                Caton
                  Maritime
                  Corp.
                
                Dorchester
      Maritime
                  Corp.
                
                Longwoods
      Maritime
                  Corp.
                
                McHenry
      Maritime
                  Corp.
                
                Sunswyck
      Maritime
                  CorpMilestone
                
                Hull
      No NYHS200720
                
                Hull
      No NYHS200721
                
                Hull
      No NYHS200722
                
                Hull
      No NYHS200723
                
                Hull
      No NYHS200724
                
                Hull
      No NYHS200725Contract
      Signing
                
                $  5.0
      million
                
                $  5.0
      million
                
                $  5.0
      million
                
                $  5.0
      million
                
                $  5.0
      million
                
                $  5.0
      millionSteel
      Cutting
                
                $  5.0
      million
                
                $  5.0
      million
                
                $  5.0
      million
                
                $  5.0
      million
                
                $  5.0
      million
                
                $  5.0
      millionKeel
      Laying
                
                $  5.0
      million
                
                $  5.0
      million
                
                $  5.0
      million
                
                $  5.0
      million
                
                $  5.0
      million
                
                $  5.0
      millionLaunching
                
                $  5.0
      million
                
                $  5.0
      million
                
                $  5.0
      million
                
                $  5.0
      million
                
                $  5.0
      million
                
                $  5.0
      millionDelivery
                
                $  5.0
      million
                
                $  5.0
      million
                
                $  5.0
      million
                
                $  5.0
      million
                
                $  5.0
      million
                
                $  5.0
      million
  As of
March 31, 2008, the Company borrowed $45.0 million, consisting of $30.0 million
drawn down shortly after the signing of the contracts, $5.0 million drawn down
on the steel cutting of Hull No NYHS20720, $5.0 million drawn down on the steel
cutting of Hull No NYHS20721 and $5.0 million drawn down on keel laying of Hull
No NYHS20720.  The advances due at the time of delivery, as shown in
the above table, are subject to adjustment if the total advanced by the lenders,
including the scheduled delivery advance, exceeds 75% of the value of the vessel
at the time of delivery. The RBS Credit Facility is collateralized by the
respective shipbuilding contracts while the vessels are under construction and
by Preferred Ship Mortgages on the new vessels, and assignment of freight
revenue and insurance after delivery of the respective vessel. TBSI guarantees
the obligations of the borrowing subsidiaries under the RBS Credit
Facility.
 
 Interest
on the RBS Credit Facility is at LIBOR plus a margin of 1.75% prior to the
drawdown of the advance at the time of delivery and at LIBOR plus a margin of
1.50% after the delivery advance is drawn down. Interest is payable either
monthly, quarterly or semi-annually depending on interest period selected by the
Company.  Each of the loans made under the RBS Credit Facility is payable
in 40 quarterly installments of $0.4 beginning three months after the drawdown
of the delivery advance with a final payment of $8.3 due when the last quarterly
payment is made. If the delivery advance is not advanced in full, the
repayment installments will be reduced pro-rata.
 
 The RBS
Credit Facility agreement contains certain financial and non-financial
covenants. The non-financial covenants include customary restrictions on the
borrowing subsidiaries' ability to incur indebtedness or grant liens, enter into
transactions with affiliates, merge, consolidate, or dispose of assets, and
change the nature of their business and materially amend or fail to enforce the
shipbuilding contracts with China Communications Construction Company Ltd and
Nantong Yahua Shipbuilding Co., Ltd. The borrowing subsidiaries are also
required to, among other things, maintain the vessels when delivered, comply
with all applicable laws, keep proper books and records, preserve their
corporate existence, maintain insurance, and pay taxes in a timely manner.
Further, the fair market value of the vessels subject to the mortgage must be at
least 125% of the outstanding loan amount. The financial covenants require that
the Company maintain certain fixed charge and leverage ratios, as well as
maintain tangible net worth within defined limits. We are also required to
maintain minimum cash and cash equivalent balances and collateral coverage.
TBSI as Guarantor, is restricted from paying dividends or making other
distributions that would (1) result in a default of the RBS Credit Facility
(2) exceed 50% of consolidated net income for the fiscal year the dividend
or distributions are made, or (3) cause the Company to be out of compliance with
the minimum Consolidated Fixed Charge Coverage Ratio set forth in the loan
agreement. At March 31, 2008, and from the initiation of the credit facility,
the Company was in compliance with all covenants.
 
 Table of Contents
 12
 Concurrent
with the TBS's subsidiaries entering into the RBS Credit Facility, the borrowing
subsidiaries entered into an agreement ("Guarantee Facility") to have The Royal
Bank of Scotland plc guarantee payments due under the Building Contracts. Under
the Guarantee Facility, The Royal Bank of Scotland plc has agreed to guarantee
the second, third, and fourth installments due by the borrowing subsidiaries
under their respective shipbuilding contract. The Guarantee Facility provides
for a guarantee of up to $14.0 million for each borrower subsidiary for an
aggregate guarantee of $84.0 million. The Guarantee Facility for each borrower
subsidiary expires twelve months after the anticipated delivery date of the
respective vessel. The Company guarantees the obligations of the borrower
subsidiary under the Guarantee Facility.
 
 The
Company incurred deferred financing costs of $2.0 million during the first
quarter of 2007 that are being capitalized as part of the costs of the
construction of the vessels.
 
 Credit
Suisse Term Loan Facility
  On December 7, 2007, the Company
through two wholly owned subsidiaries, entered into a credit agreement with
Credit Suisse for a $40.0 million term loan credit facility (the "CS Credit
Facility") to replenish working capital used to purchase the Arapaho Belle and Oneida Princess. The Oneida Princesswas delivered
on February 11, 2008 and the remaining $20.0 million of the credit facility was
drawn down on February 19, 2008.
  The CS Credit Facility is repayable
over ten years in quarterly installments of $0.8 for the first eight quarters
and $0.4 for the remaining thirty two quarters. Interest is payable quarterly in
arrears at LIBOR plus 1.05% if the outstanding balance of the loan is at or
below 65% of the vessels' market value or 1.20% if the outstanding balance of
the loan is above 65% of the vessels' market value.
  The
Company incurred deferred financing costs of $0.4 million that are being
amortized over the term of the credit facility.  The CS Credit
Facility is collateralized primarily by the two vessels, which have a net book
value at March 31, 2008 of $62.9 million, and a pledge of any insurance proceeds
received related to the vessels.  The CS Credit Facility is guaranteed
by TBSI.
  The CS
Credit Facility agreement contains certain financial and non-financial
covenants.  The non-financial covenants include customary restrictions
on the Company’s ability to incur indebtedness or grant liens, pay dividends
under certain circumstances, enter into transactions with affiliates, merge,
consolidate, or dispose of assets, and change the nature of its
business.  The financial covenants require that we maintain certain
fixed charge and leverage ratios, as well as maintain tangible net worth within
defined limits.  We are also required to maintain minimum cash and
cash equivalent balances and collateral coverage.  In addition, the
Credit Facility requires minimum collateral coverage, restricts the payment of
dividends and restricts leverage, investment and capital expenditures without
consent of the lender and requires mandatory prepayment or delivery of
additional security in the event that the fair market value of the vessels falls
below limits specified in the loan agreement.  At March 31, 2008, and from
the initiation of the credit facility, the Company was in compliance with all
covenants.
 
 The
DVB Credit Facility
 
 On
January 16, 2008 the Company, through seven subsidiaries entered into a $75.0
million credit facility with a syndication of lenders led by DVB Group
Merchant Bank (Asia) Ltd. ("DVB Credit Facility").  The proceeds were used
to replenish working capital used to exercise a purchase option for seven
multipurpose tweendeck vessels chartered in under a sale-leaseback arrangement,
and for general corporate purposes. These vessels have been part of our
operational fleet since 2003 under a 66 month sale-leaseback contract which
provided purchase options.
 
 The loan
is repayable over five years in quarterly installments of $4.9 million for the
first ten quarters and $2.6 million for the remaining ten quarters.
Interest is LIBOR plus 2.50% payable quarterly in arrears.
 
 The
Company incurred deferred financing costs of $1.2 million that are being
amortized over the term of the credit facility.  The DVB Credit
Facility is collateralized primarily by the seven vessels, which have a net book
value at March 31, 2008 of $35.1 million, and a pledge of any insurance proceeds
received related to the vessels.  The DVB Credit Facility is
guaranteed by TBSI.
  The DVB
Credit Facility agreement contains certain financial and non-financial
covenants. The financial covenants require that we maintain certain fixed charge
and leverage ratios, minimum cash and cash equivalent balances and collateral
coverage, and tangible net worth within defined limits.  Non-financial
covenants include, among others, compliance with maritime laws and regulations,
maintenance of the vessels consistent with first-class ship ownership and
management practice, keep appropriate accounting records and maintain adequate
insurance. At March 31, 2008, and from the initiation of the credit facility,
the Company was in compliance with all covenants.
 
 Table of Contents
 13
 AIG
Commercial Equipment Finance Borrowing
 
 On
February 29, 2008 TBSI, through three of its subsidiaries, borrowed $35.0
million from AIG Commercial Equipment Finance, Inc. ("AIG Credit
Facility").  The loan proceeds were used to replenish working capital
used to acquire the Hopi
Princess, Mohave
Maiden and Zuni
Princess. The loan is repayable over four years in quarterly installments
of $2.63 million for the first eight quarters and $1.75 million for the
remaining eight quarters. Interest is LIBOR plus an interest margin of 1.75%,
with an interest rate floor of 5.0%.
 
 The
Company incurred deferred financing costs of $0.4 million that are being
amortized over the term of the credit facility.  The AIG Credit
Facility is collateralized primarily by the three vessels, which had a net book
value at March 31, 2008 of $69.8 million, and a pledge of any insurance proceeds
received related to the vessels.  The AIG Credit Facility is
guaranteed by TBSI.
  The AIG
Credit Facility agreement contains certain financial and non-financial
covenants. The financial covenants require that we maintain certain fixed charge
and leverage ratios, minimum cash and cash equivalent balances and collateral
coverage, and tangible net worth within defined limits.  The
non-financial covenants require the Company, among other things, to: maintain
vessels when delivered, comply with applicable laws, maintain proper books and
records preserve its corporate existence and maintain adequate
insurance.  At March 31, 2008, and from the initiation of the credit
facility, the Company was in compliance with all covenants.
 
 Note
8 — Derivative Financial Instruments
  The
Company is exposed to certain risks relating to its ongoing business operations.
Currently, the only risk managed by using derivative instruments is interest
rate risk.  Interest rate swaps are entered into manage interest rate risk
associated with the Company’s floating-rate borrowings. SFAS No. 133 requires
companies to recognize all derivative instruments as either assets or
liabilities at fair value in the statement of financial position. In accordance
with SFAS No. 133, the Company designates interest rate swaps as cash flow
hedges of floating-rate borrowings. The Company uses the "matched terms"
accounting method as provided by Derivative implementation Group Issue G9,
"Assuming No Ineffectiveness When Critical Terms of the Hedging Instruments and
the Hedge Transaction Match in a Cash Flow Hedge” and the methodology prescribed
by Derivative Implementation Group Issue G7, "Cash Flow Hedges Measuring the
Ineffectiveness of a Cash Flow Hedge under Paragraph 30(b) When the Shortcut
Method Is Not Applied" to account for interest rate contracts.
 
 For
derivative instruments that are designated and qualify as a cash flow hedge, the
effective portion of the gain or loss on the derivative is reported as a
component of other comprehensive income and reclassified into earnings in the
same period or periods during which the hedged transaction affects earnings.
Gains and losses on the derivative representing either hedge ineffectiveness or
hedge components excluded from the assessment of effectiveness are recognized in
current earnings.
 
 As of
March 31, 2008, the total notional amount of the Company’s
receive-variable/pay-fixed interest rate swaps was $171.9 million. A deferred
starting contract for the notional amount of $20.0 million will begin June 29,
2008.  Interest rate contracts have fixed interest rates ranging from
2.92% to 5.24%, with a weighted average rate of 4.08%.  The notional
amount, for interest rate contracts having a notional amount of $141.9 million
at March 31, 2008, decrease as principal payments on the respective debt is
made.  Information on the location and amounts of derivative fair
values in the consolidated balance sheets and derivative gains and losses in the
consolidated income statements is shown below:
  Liability
      Derivatives(in
      thousands)
                
                March
      31, 2008
                
                December
      31, 2007Balance
      Sheet
                  Location
                
                Fair
      Value
                
                Balance
      Sheet
                  Location
                
                Fair
      ValueDerivatives
      designated as hedging instruments under
                  Statement
      133Interest
      rate contracts
                
                Other
      liabilities
                
                $
                6,269
                
                Other
      liabilities
                
                $
                2,897Derivatives
      not designated as hedging instruments under Statement 133Interest
      rate contracts
                
                Other
      liabilities
                
                
                660
                
                Other
      liabilities
                
                
                568Total
      derivatives
                
                
                
                $
                6,929
                
                
                
                $
                3,465
  Table of Contents
 14
 Amount
      of Gain or (Loss) Recognized in OCI
                  on
      Derivatives (Effective Portion)Derivatives
      in Statement 133 Cash
                  Flow
      Hedging Relationships
                
                March
      31, 2008
                
                
                December
      31, 2007Interest
      rate contracts
                
                $
                6,269
                
                
                $
                2,897
  Amount
      of Gain or (Loss)
                      Recognized
      in Income on DerivativesFor
      the Three Months Ended March 31,Derivatives
      Not Designated as Hedging
                      Instruments
      under Statement 133
                    
                    Location
      of Gain or (Loss)  Recognized in
                      Income
      on Derivatives
                    
                    2008
                    
                    
                    2007Interest
      rate contracts
                    
                    Interest
      expense
                    
                    $
                    660
                    
                    
                    $
                    -
 
 The
Company manages its counterparty credit risk by entering into interest rate
contracts with only high-quality financial institutions located throughout the
world.
  No
amounts were reclassified from accumulated other comprehensive income into
income, nor were amounts recognized in income on the ineffective portion of
derivatives or amounts of derivatives excluded from effectiveness testing during
the three months ended March 31, 2008 and 2007.  A deferred starting
interest rate contract, which starts December 29, 2014 and continues through
December 29, 2019 for the notional amount of $20.0 million of debt, is callable
at the bank’s option at anytime during the contract. Accordingly, changes to the
value of the swap contract do not qualify for hedge accounting treatment
and are included as a component of interest expense in the consolidated
statement of income.
  Note
9 — Fair Value Measurements
  Effective
January 1, 2008, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 157, "Fair Value Measurements" (SFAS No. 157), which defines fair
value, establishes a framework for measuring fair value, and expands disclosures
about fair value measurements.  The fair value hierarchy for
disclosure of fair value measurements under SFAS No. 157 is as
follows:
  Level
      1 – Quoted prices in active markets for identical assets or
      liabilitiesLevel
      2 – Quoted prices for similar assets and liabilities in active markets or
      inputs that are observableLevel
      3 – Inputs that are unobservable (for example cash flow modeling inputs
      based on assumptions)
  The
following table summarizes assets and liabilities measured at fair value on
recurring basis at March 31, 2008, as required by SFAS No. 157:
  Level
      1
              
              
              Level
      2
              
              
              Level
      3LiabilitiesInterest
      rate contracts
              
              $
              -
              
              
              $
              6,269
              
              
              $
              -
  See
Footnote 8 – Derivative Financial Instruments for a description of our interest
rate contracts.
  Our
interest rate swap contracts are over the counter market contracts. The
fair value is based on the quoted market price for a similar liability or
determined using inputs that use as their basis readily observable market data
that are actively quoted and can be validated through external
sources.
  Table of Contents
 15
  Note
10 — Equity Transactions
  Class
A and Class B Common Shares
  The
Company has two classes of common shares that are issued and outstanding - Class
A common shares, which are listed on the Nasdaq Global Select Market, and Class
B common shares. The Class A common shares and Class B common shares have
identical rights to dividends, surplus and assets on liquidation; however, the
holders of Class A common shares are entitled to one vote for each Class A
common share on all matters submitted to a vote of holders of common shares,
while holders of Class B common shares are entitled to one-half of a vote for
each Class B common share.
  The holders of Class A common shares
can convert their Class A common shares into Class B common shares, and the
holders of Class B common shares can convert their Class B common shares into
Class A common shares at any time. Further, the Class B common shares will
automatically convert into Class A common shares upon transfer to any person
other than another holder of Class B common shares, in each case as long as the
conversion will not cause the Company to become a controlled foreign
corporation, as defined in the Internal Revenue Code or the Class A common
shares cease to be regularly traded on an established securities market for
purposes of Section 883 of the Internal Revenue Code.
 
 Warrants
 
 Warrants
were issued by the Company in connection with its emergence from bankruptcy in
2001 and became exercisable when the first Preferred Ship Mortgage Notes were
not paid on June 29, 2005. The warrant agreement includes an anti-dilution
provision that adjusts the number of shares issuable upon exercise of the
warrants whenever the Company issues additional common shares or engages in
similar transactions.  At March 31,2008, there were outstanding exercisable warrants to purchase 98,311
Class A and 190,542 Class B common shares, held by parties not affiliated with
existing shareholders. The warrants are exercisable for a period of ten
years following the date on which their exercise condition was met (February 8,
2005), at a price of $.01 per share.
 
 Note 11 — Earnings Per
Share
  In
accordance with FASB No. 128, “Earnings per Share,” the following table sets
forth the computation of basic and diluted net income per share for the three
months ended March 31, 2008 and 2007:
  Three
      Months Ended March 31,2008
                
                
                2007(In
      thousands, except earnings per share amounts)Numerators:Net
      income
                
                $
                45,378
                
                
                $
                14,404Denominators:Basic-weighted
      average common shares outstanding
                
                
                28,044
                
                
                
                28,013Restricted
      stock issued to employees and directors
                
                
                36
                
                
                
                23Diluted-weighted
      average common shares and potential common shares
    outstanding
                
                
                28,080
                
                
                
                28,036Income
      per common share:Basic
                
                $
                1.62
                
                
                $
                0.51Diluted
                
                $
                1.62
                
                
                $
                0.51
  Table of Contents
 16
 At March
31, 2008 and 2007, there were outstanding exercisable warrants to purchase
98,311 Class A and 190,542 Class B common shares, held by parties not affiliated
with existing shareholders. The warrants have been treated as outstanding for
purposes of basic earnings per share for the three months ended March 31, 2008
and 2007, because they are issuable for nominal consideration upon exercise of
the warrants.
 
 Note
12 — Commitments and Contingencies
 
 Commitments
  Charters-in
of Vessels
  The
Company charters-in two vessels (Laguna Belle and Seminole Princess) under
long-term noncancelable operating leases (bareboat charters) that were part of a
sale-leaseback transaction. Both bareboat charters expire on January 30,
2014.  Each bareboat charter requires charter hire payments of $10,500
per day for the first two years of the charter, $10,000 per day during the third
year of the charter and $7,350 per day during the fourth through seventh years
of the charter. The charter agreements allow for the purchase of the respective
vessel at the end of the fifth, sixth or seventh year of the charter period at a
vessel price of $11.1 million, $9.15 million, or $6.75 million, respectively and
for the purchase options to be exercised at any other date during the option
period at a pro-rata price.  The leases under the sale-leaseback
transactions were classified as operating leases. Deposits of $2.75 million, to
be held by the lessor for each charter during the charter period, were required
at the inception of the lease. The deposits are to be returned, without
interest, at the expiration of the charter period, unless applied earlier toward
the amounts due upon exercise of the purchase option. Deferred leasing costs of
$1.2 million, incurred in connection with the origination of the charters, are
being amortized over the terms of the leases. As mentioned above, the bareboat
charters contain predetermined fixed decreases of the charter hire payments due
under the charters.  The Company recognizes the related rental expense
on a straight-line basis over the term of the charters and records the
difference between the amounts charged to operations and amounts paid as
deferred rent receivable. At March 31, 2008 and December 31, 2007, deferred rent
receivable was $1.6 million and $1.1 million, respectively.
  Other
Leases
  The Company leases three properties,
two of which are used by TBSI’s service company subsidiaries Roymar and TBS
Shipping for the administration of their operations, and the third is vacant
land. The main office space is rented from our chairman and chief executive
officer by TBS Shipping. The lease, which was to expire December 31, 2007, was
renewed under the first of five one-year renewal options until December 31,
2008.  The lease provides for monthly rent of $20,000 per month, plus
operating expenses including real estate taxes.
  Roymar renewed its lease under the
first of two one-year renewal options though October 31, 2008 at a monthly rent
of $25,058.  The lease requires Roymar to pay additional rent for real
estate tax escalations.
  The
Company also leases undeveloped land in the Calhoun County Navigation District,
Port Comfort, Texas.  The lease, which has a term of ten years
expiring December 31, 2016, provides for monthly rent of $6,000.
 
 As of
March 31, 2007 future minimum commitments under operating leases with initial or
remaining lease terms exceeding one-year are as follows (in
thousands):
 
 OfficeAt
      March 31, 2008
                
                Vessel
      Hire
                
                
                Premises
                
                
                Total2008  (April
      1, 2008 through December 31, 2008)
                
                $
                5,775
                
                
                $
                503
                
                
                
                6,2782009
                
                
                7,910
                
                
                
                72
                
                
                
                7,9822010
                
                
                5,951
                
                
                
                72
                
                
                
                6,0232011
                
                
                5,351
                
                
                
                72
                
                
                
                5,4232012
                
                
                5,366
                
                
                
                72
                
                
                
                5,438Thereafter
                
                
                5,792
                
                
                
                288
                
                
                
                6,080$
                36,145
                
                
                $
                1,079
                
                
                $
                37,224
  Table of Contents
 17
 Purchase
Obligations –New Vessel Buildings
  At March
31, 2008, the Company had purchase obligations totaling $136.7 million in
connection with its new vessel building program, including obligations under the
contract for the supervision and inspection of vessels under
construction.  The obligations will become payable as the shipyard
meets several milestones through June 2010.  As of March 31, 2008,
$136.7 million of the purchase obligation is scheduled to be paid as
follows:  $56.8 million in 2008, $57.4 million in 2009, and $22.5
million in 2010.  The timing of actual payments will vary based upon
when the milestones are met.
  Purchase
Obligations – Vessel
  On
February 19, 2008, we entered into a memorandum of agreement to purchase the
Athinoula(renamed Canarsie Princess) for $30.3
million.  We paid a deposit of $3.0 million on February 19, 2008 and
the balance of $27.3 million is to be paid upon delivery during the second
quarter of 2008.
  Contingencies
  The
Company is periodically a defendant in cases involving personal injury and other
matters that arise in the normal course of business. While any pending or
threatened litigation has an element of uncertainty, the Company believes that
the outcome of these lawsuits or claims, individually or combined, will not
materially adversely affect the consolidated financial position, results of
operations or cash flows of the Company
 
 Note
13 — Business Segment
  The
Company is managed as a single business unit that provides worldwide ocean
transportation of dry cargo service to its customers through the use of owned
and chartered vessels. The vessels are operated as one fleet and when making
resource allocation decisions, our chief operating decision maker evaluates
voyage profitability data, which considers vessel type and route economics, but
gives no weight to the financial impact of the resource allocation decision on
an individual vessel basis. The Company's objective in making resource
allocation decisions is to maximize its consolidated financial results, not the
individual results of the respective vessels or routes.
  The
Company transports cargo throughout the world, including the United States. The
amount of voyage revenue generated in countries other than the U.S. is $96.7
million and $46.9 million for the three months ended
March 31, 2008 and 2007, respectively.
  Revenue
was generated in the following principal foreign geographic areas (in
thousands):
 
 Three
      Months Ended March 31,Country
                
                2008
                
                
                2007Brazil
                
                $
                29,150
                
                
                $
                16,084Japan
                
                
                18,203
                
                
                
                8,319United
      Arab Emirates
                
                
                12,373
                
                
                
                5,540Peru
                
                
                11,419
                
                
                
                8,396Chile
                
                
                9,330
                
                
                
                1,842Korea
                
                
                3,419
                
                
                
                1,457China
                
                
                2,750
                
                
                
                2,469Venezuela
                
                
                1,407
                
                
                
                2,194Others
                
                
                8,604
                
                
                
                558Total
                
                $
                96,655
                
                
                $
                46,859
  Revenue
is attributed to these countries based on the location where the cargo is
loaded. The difference between total voyage revenues and total revenue by
country is revenue from the United States. Time charter revenue by country
cannot be allocated because the Company does not control the itinerary of the
vessel.
  Table of Contents
 18
 No
customers accounted for 10% or more of charter hire receivables at March 31,
2008 and one customer accounted for 13.1% of charter hire receivables at
December 31, 2007. No customers accounted for 10% or more of voyage and time
charter revenue for three months ended March 31, 2008 and one customer accounted
for 20.5% of voyage and time charter revenue for the three months ended March
31, 2007.
  Note
14 — Subsequent Events
 
 On
April 17, 2008, the Company entered into a commitment with a bank for a
$13.0 million credit facility to replenish operating funds used to purchase the
Ottawa Princess
(formerly the Wedellsborg).
 
 On
April 17, 2008, the Company entered into a commitment with a bank for a
$12.5 million credit facility to replenish operating funds used to purchase the
Caribe Maiden (formerly
the Frijsenborg).
 
 On April
18, 2008 the Company entered into an agreement to acquire the handymax bulk
carrier North Star, to
be renamed Houma Belle
for $34.0 million.  Delivery of the vessel is expected in June
2008.
 
 
 
 
 Table of Contents
 19
  Item 2.  Management's Discussion and Analysis of
Financial Condition and Results of Operations
  This
Quarterly Report on Form 10-Q contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. These
statements reflect current expectations of the Company's management. They are
based on our management's beliefs and assumptions and on information currently
available to our management. Forward-looking statements include, among other
things, the information concerning our possible or assumed future results of
operations, business strategies, financing plans, competitive position,
potential growth opportunities and the effects of future regulation and
competition. Forward-looking statements include all statements that are not
historical facts and can be identified by the use of forward-looking terminology
such as the words "anticipates," "believes," "estimates," "expects," "future,"
"intends," "plans" and similar terms.
 
 Forward-looking
statements involve risks, uncertainties and assumptions. Although the Company
does not make forward-looking statements unless it believes it has a reasonable
basis for doing so, it cannot guarantee their accuracy. Actual results may
differ materially from those expressed in these forward-looking statements due
to a number of uncertainties and risks, including the risks disclosed in our
Form 10-K filed with the Securities and Exchange Commission on March 14, 2008,
and other unforeseen risks. You should not rely on any forward-looking
statements.
 
 Recent
Developments
 
 On April
17, 2008, the Company entered into a commitment with a bank for a $13.0
million credit facility to replenish operating funds used to purchase the Ottawa Princess (formerly the
Wedellsborg).
 
 On April
17, 2008, the Company entered into a commitment with a bank for a $12.5
million credit facility to replenish operating funds used to purchase the Caribe Maiden (formerly the
Frijsenborg).
 
 On April 18, 2008, the
Company entered into an agreement to acquire the bulk carrierNorth
Star, to be
renamedHouma
Belle,for $34.0 million. Delivery
of the vessel is expected during the month of June
2008.
  General
 
 The
following is a discussion of our financial condition at March 31, 2008 and
December 31, 2007 and our results of operations comparing the three months ended
March 31, 2008 with the three months ended March 31, 2007. You should read this
section in conjunction with the consolidated financial statements including the
related notes to those financial statements included elsewhere in this Quarterly
Report.
 
 Overview
  We are an
ocean transportation services company that offers worldwide shipping solutions
through liner, parcel, bulk and vessel chartering services. We offer our
services globally in more than ten countries to over 300 customers through a
network of affiliated service companies.
  Our
financial results are largely driven by the following factors:
  ·
              macroeconomic
      conditions in the geographic regions where we
  operate;
  ·
              general
      economic conditions in the industries in which our customers
      operate;
  ·
              changes
      in our freight and sub-time charter rates — rates we charge for vessels we
      charter out — and, in periods when our voyage and vessel expenses
      increase, our ability to raise our rates to pass such cost increases
      through to our customers;
  ·
              the
      extent to which we are able to efficiently utilize our controlled fleet
      and optimize its capacity; and
  ·
              the
      extent to which we can control our fixed and variable costs, including
      those for port charges, fuel, commission expense and stevedore and other
      cargo-related expenses.
  Table of Contents
 20
 Drydocking
  In the
last three years, our fleet has grown from 22 to 42 vessels. These vessels must
be drydocked twice during a five-year cycle. Thus, our controlled fleet of 42
vessels at March 31, 2008, would result in 84 drydockings over five years or an
average of 17 vessels per year.
  We strive
to maintain and upgrade our vessels to the highest standards.  The
vessels in our fleet have an average age of 22 years. Accordingly, we have
decided to accelerate the timing of steel renewals and reinforcements on many of
the vessels that were scheduled for drydocking in 2007, as well as vessels
scheduled for drydocking in 2008.  We expect that these renewals and
reinforcements would have been required in the next five to ten
years.
  During
the first quarter of 2008, one vessel that entered into drydock during the
fourth quarter of 2007 continued its drydocking for 15 days and four vessels
entered drydock for 132 days. Our preliminary quarterly drydock schedule of
vessels anticipated to be drydocked during the remainder of 2008, including
estimated number of drydock days and metric tons of steel renewal, is as
follows:
  Anticipated
      Number of vessels entering drydock during quarter
                  
                  
                  Anticipated
      Number of drydock days
                    during
      quarter
                  
                  
                  Estimated
      metric tons of steel to be installedFirst
      Quarter 2008
                  
                  
                  4
                  
                  
                  
                  147
                  
                  
                  
                  895Second
      Quarter 2008
                  
                  
                  5
                  
                  
                  
                  185
                  
                  
                  
                  650Third
      Quarter 2008
                  
                  
                  3
                  
                  
                  
                  98
                  
                  
                  
                  335Fourth
      Quarter 2008
                  
                  
                  4
                  
                  
                  
                  115
                  
                  
                  
                  760Total
      for 2008
                  
                  
                  16
                  
                  
                  
                  545
                  
                  
                  
                  2,640
  We
estimate that vessel drydockings that require less than 100 metric tons of steel
renewal will take from 25 to 35 days and that vessel drydockings that require
100 to 500 metric tons of steel renewal will take from 35 to 70 days. Our
estimates are based on current and anticipated congestion in the Chinese repair
shipyards, which could be adversely affected by any unanticipated weather or
congestion in the shipyard. Further, our 2008 drydock schedule is subject to
change based on unanticipated commercial needs of our business.
  Components
of revenue and expense
  We report
our revenue as voyage revenue, reflecting the operations of our vessels that are
not chartered out, and charter revenue, reflecting the operations of our vessels
that have been chartered out to third parties. Voyage revenue and expenses for
each reporting period include estimates for voyages in progress at the end of
the period. Estimated profits from voyages in progress are recognized on a
percentage of completion basis by prorating the estimated final voyage revenue
and expenses using the ratio of voyage days completed through period end to
total voyage days. When a loss is forecast for a voyage, the full amount of the
anticipated loss is recognized in the period in which that determination is
made. Revenue from time charters in progress is calculated using the daily
charter hire rate, net of daily expenses multiplied by the number of voyage days
on-hire through period end.
  Voyage
revenue consists of freight charges paid to our subsidiaries for the
transport of customers' cargo. Freight rates are set by the market and depend on
the relationship between the demand for ocean freight transportation and the
availability of appropriate vessels. The key factors driving voyage revenue are
the number of vessels in the fleet, the days on hire, freight rates and revenue
tons carried.
  Time charter
revenue consists of a negotiated daily hire rate for the duration of the
time charter. The key factors driving time charter revenue are the number of
days that vessels are chartered out and the daily charter hire
rates.
  Voyage
expenses consist primarily of fuel, port call costs, stevedoring and
other cargo related expense, commissions and miscellaneous voyage expense all of
which are paid by our subsidiaries.
  Vessel
expensesare vessel operating
expenses — crewing, stores, lube oil, repairs and maintenance, registration
taxes and fees, insurance and communication expenses — for vessels we control,
charter hire fees we pay to owners for use of their vessels and space charters
(relets). These costs are paid by our subsidiaries.
  Table of Contents
 21
 Depreciation and
amortizationexpense is computed on
the basis of 30-year useful live for our vessels.
  A portion of
commissions on freight and port agency fees are paid to TBS Commercial
Group Ltd., a company that is owned by our principal shareholders. Renewal of
the current management agreements with TBS Commercial Group Ltd. and approval of
any new management agreements or amendments to the current management agreements
with TBS Commercial Group Ltd. are subject to approval by the compensation
committee of our Board of Directors.
 
 Results
of Operations
 
 Comparison
of the three months ended March 31, 2008 to the three months ended March 31,
2007
 
 Three
      Months Ended
                
                Three
      Months EndedMarch
      31, 2008
                
                March
      31, 2007
                
                Increase
      (Decrease)In
      Thousands
                
                As
      a % of Total Revenue
                
                In
      Thousands
                
                As
      a % of Total Revenue
                
                In
      Thousands
                
                PercentageVoyage
      revenue
                
                $
                98,160
                
                
                74.6
                
                $
                51,939
                
                
                73.9
                
                
                46,221
                
                
                89.0Time
      charter revenue
                
                
                32,726
                
                
                24.9
                
                
                18,069
                
                
                25.6
                
                
                14,657
                
                
                81.1Other
      revenue
                
                
                690
                
                
                0.5
                
                
                318
                
                
                0.5
                
                
                372
                
                
                117.0Total
      revenue
                
                
                131,576
                
                
                100.0
                
                
                70,326
                
                
                100.0
                
                
                61,250
                
                
                87.1Voyage
      expense
                
                
                32,418
                
                
                24.6
                
                
                19,181
                
                
                27.3
                
                
                13,237
                
                
                69.0Vessel
      expense
                
                
                23,434
                
                
                17.8
                
                
                17,557
                
                
                25.0
                
                
                5,877
                
                
                33.5Depreciation
      and amortization
                
                
                13,493
                
                
                10.3
                
                
                8,414
                
                
                12.0
                
                
                5,079
                
                
                60.4General
      and administrative
                
                
                11,767
                
                
                8.9
                
                
                7,180
                
                
                10.2
                
                
                4,587
                
                
                63.9Loss
      from sale of vessel
                
                
                -
                
                
                -
                
                
                779
                
                
                1.1
                
                
                (779
                )
                
                (100.0
                )Total
      operating expenses
                
                
                81,112
                
                
                61.6
                
                
                53,111
                
                
                75.6
                
                
                28,001
                
                
                52.7Income
      from operations
                
                
                50,464
                
                
                38.4
                
                
                17,215
                
                
                24.4
                
                
                33,249
                
                
                193.1Other
      (expenses) and incomeInterest
      expense
                
                
                (3,437
                )
                
                (2.6
                )
                
                (2,772
                )
                
                (3.9
                )
                
                (665
                )
                
                24.0Loss
      on extinguishment of debt
                
                
                (2,318
                )
                
                (1.8
                )
                
                -
                
                
                -
                
                
                (2,318
                )
                
                -Other
      income (expense)
                
                
                669
                
                
                0.5
                
                
                (39
                )
                
                (0.1
                )
                
                708Net  income
                
                $
                45,378
                
                
                34.5
                
                $
                14,404
                
                
                20.4
                
                $
                30,974
                
                
                215.0
  Voyage
revenue
  The
increase in our voyage revenue for the three months ended March 31, 2008, as
compared to the comparable period in 2007, was primarily due to an increase in
revenue tons carried and an increase in average freight rates. As mentioned
above, the key factors driving voyage revenue are the number of vessels in the
fleet, the days on hire, freight rates and tons carried.
  Revenue
tons carried increased 541,862 tons or 36.1% to 2,043,952 tons for the three
months ended March 31, 2008 from 1,502,090 tons for the same period in 2007. The
increase in revenue tons carried is primarily due to an increase in aggregate
bulk cargo carried.
 
 Average
freight rates for the three months ended March 31, 2008, as compared to the same
period in 2007, increased $13.44 per ton, or 38.9%, to $48.02 per ton from
$34.58 per ton for the same period of 2007. The average freight rates increased
despite the increase in high-volume, low-freighted aggregates bulk cargo that we
handled in 2008 as compared to 2007. Excluding this type of bulk cargo, of which
we carried 1,050,123 tons for the three months ended March 31, 2008, the average
freight rates would have been $86.32 per ton as compared to $55.19 per ton for
the same period in 2007. While average freight rates on aggregates bulk cargo is
lower than average freight rates on other types of cargoes, voyage costs are
also lower resulting in comparable daily time charter equivalent
rates.
 
 Table of Contents
 22
 The
weighted average number of vessels in the fleet, freight voyage days and days on
hire, excluding vessels time-chartered out, revenue tons carried, and freight
rates (over all freight rates and freight rates excluding aggregates) and the
daily time charter equivalent rates for the three months ended March 31, 2008
and 2007 are as follows:
 
 Three
      Months Ended March 31,2008
                
                
                2007Average
      number of vessels (1)
                
                
                26
                
                
                
                21Freight
      voyage days (2)
                
                
                2,375
                
                
                
                1,898Days
      on hire (3)
                
                
                2,476
                
                
                
                1,912Revenue
      tons carried (4)For
      all cargoes
                
                
                2,044
                
                
                
                1,502Excluding
      aggregates
                
                
                994
                
                
                
                841Aggregates
                
                
                1,050
                
                
                
                661Freight
      Rates (5)For
      all cargoes
                
                $
                48.02
                
                
                $
                34.58Excluding
      aggregates
                
                $
                86.32
                
                
                $
                55.19Daily
      time charter equivalent rates (6)
                
                $
                28,303
                
                
                $
                17,816
  (1)
              Weighted
      average number of vessels in the fleet, not including vessels chartered
      out.(2)
              Number
      of days that our vessels were earning revenue, not including vessels
      chartered out.(3)
              Number
      of days that our vessels were available for hire, not including vessels
      chartered out.(4)
              Revenue
      tons is a measurement on which shipments are freighted.  Cargoes
      are rated as weight (based on metric tons) or measure (based on cubic
      meters); whichever produces the higher revenue will be considered the
      revenue ton.(5)
              Weighted
      average freight rates measured in dollars per ton.(6)
              Time
      Charter Equivalent or "TCE" rates are defined as voyage revenue less
      voyage expenses during the period divided by the number of available
      freight voyage days during the period.  Voyage expenses include the
      following expenses: fuel, port call, commissions, stevedore and other
      cargo related and miscellaneous voyage expenses.  No deduction is
      made for vessel or general and administrative expenses. TCE is an industry
      standard for measuring and analyzing fluctuations between financial
      periods and as a method of equating TCE revenue generated from a
      voyage charter to time charter
revenue.
 
 The
following table shows revenues attributed to our principal cargoes:
  Three
      Months EndedMarch
      31, 2008
                
                
                March
      31, 2007
                
                Increase
      (Decrease)Description
                
                In
      Thousands
                
                As
      a % of Total Voyage Revenue
                
                
                In
      Thousands
                
                As
      a % of Total Voyage Revenue
                
                In
      Thousands
                
                %Steel
      products
                
                $
                27,935
                
                
                28.5
                
                
                $
                15,979
                
                
                30.8
                
                $
                11,956
                
                
                74.8Metal
      concentrates
                
                
                20,374
                
                
                20.8
                
                
                
                9,202
                
                
                17.7
                
                
                11,172
                
                
                121.4Agricultural
      products
                
                
                13,932
                
                
                14.2
                
                
                
                8,085
                
                
                15.6
                
                
                5,847
                
                
                72.3Aggregates
                
                
                12,373
                
                
                12.6
                
                
                
                5,540
                
                
                10.7
                
                
                6,833
                
                
                123.3Other
      bulk cargo
                
                
                9,463
                
                
                9.6
                
                
                
                4,190
                
                
                8.1
                
                
                5,273
                
                
                125.8Project
      cargo
                
                
                5,031
                
                
                5.1
                
                
                
                1,570
                
                
                3.0
                
                
                3,461
                
                
                220.4Rolling
      stock
                
                
                3,581
                
                
                3.6
                
                
                
                2,919
                
                
                5.6
                
                
                662
                
                
                22.7Automotive
      products
                
                
                2,321
                
                
                2.4
                
                
                
                967
                
                
                1.9
                
                
                1,354
                
                
                140.0General
      cargo
                
                
                1,798
                
                
                1.8
                
                
                
                858
                
                
                1.7
                
                
                940
                
                
                109.6Fertilizers
                
                
                -
                
                
                -
                
                
                
                1,545
                
                
                2.9
                
                
                (1,545
                )
                
                (100.0
                )Other
                
                
                1,352
                
                
                1.4
                
                
                
                1,084
                
                
                2.0
                
                
                268
                
                
                24.7Total
      voyage revenue
                
                $
                98,160
                
                
                100.0
                
                
                $
                51,939
                
                
                100.0
                
                $
                46,221
                
                
                89.0
  Table of Contents
 23
 Time
charter revenue
 
 Time
charter revenue increased to $32.7 million for the three months ended March 31,
2008 from $18.1 million for the comparable period in 2007. As mentioned above,
the key factors driving time charter revenue are the number of days that vessels
are chartered out and the daily charter hire rates.
  Average
charter hire rate increased $13,595 per day to $31,773 per day for the three
months ended March 31, 2008 from $18,178 per day for the comparable period in
2007. Charter hire rates are set, to a significant degree, by the market and
depend on the relationship between the demand for ocean freight transportation
and the availability of appropriate vessels.  The increase in the
average charter hire rate per day is primarily due to the continued strength in
the overall worldwide shipping spot market rates. During the three months ended
March 31, 2008, time charter out days increased 36 days to 1,030 days from 994
days for the same period in 2007.
  The
number of vessels time chartered out, time charter days, average daily charter
rates and daily time charter equivalent rates for the three months ended March
31, 2008 and 2007 are as follows:
 
 Three
      months ended March 31,2008
                
                
                2007Average
      number of vessels (1)
                
                
                11
                
                
                
                11Time
      Charter days (2)
                
                
                1,030
                
                
                
                994Daily
      charter hire rates (3)
                
                $
                31,773
                
                
                $
                18,178Daily
      time charter equivalent rates (4)
                
                $
                30,339
                
                
                $
                17,115
 
 (1)
              Weighted
      average number of vessels chartered out.(2)
              Number
      of days vessels earned charter hire.(3)
              Weighted
      average charter hire rates.(4)
              Time
      Charter Equivalent or "TCE" rates for vessels that are time chartered out,
      are defined as time charter revenue during the period reduced by
      commissions divided by the number of available time charter days during
      the period.  Commissions for vessels that are time chartered out for
      the three months ended March 31, 2008 and March 31, 2007 were $1.5 million
      and $1.1 million, respectively. No deduction is made for vessel or general
      and administrative expenses.  TCE is an industry standard for
      measuring and analyzing fluctuations between financial periods and as
      a method of equating TCE revenue generated from a voyage charter to time
      charter revenue. No voyage expenses are deducted because they are not
      applicable.
 
 Voyage
expense
 
 Voyage
expense consists of costs attributable to specific voyages. The number of voyage
days is a significant determinant of voyage expense, which consist of fuel
costs, commissions, port call, stevedore and other cargo related costs, and
miscellaneous voyage expense. The following table shows the change in the number
of voyage days for the three months ended March 31, 2008 as compared to the same
period in 2007.
 
 Three
      Months Ended March 31,2008
                
                
                2007
                
                
                Increase
      (Decrease)Freight
      voyage days
                
                
                2,375
                
                
                
                1,898
                
                
                
                477
                
                
                
                25.1
                %Time
      charter out days
                
                
                1,030
                
                
                
                994
                
                
                
                36
                
                
                
                3.6
                %Total
      voyage days
                
                
                3,405
                
                
                
                2,892
                
                
                
                513
                
                
                
                17.7
                %
  Table of Contents
 24
 The
principal components of voyage expense were as follows:
 
 Three
      Months Ended
                
                Three
      Months EndedMarch
      31, 2008
                
                March
      31, 2007
                
                Increase
      (Decrease)In
      Thousands
                
                As
      a % of Voyage Expense
                
                As
      a % of Revenue
                
                In
      Thousands
                
                As
      a % of Voyage Expense
                
                As
      a % of Revenue
                
                In
      Thousands
                
                As
      a % of 2007 Expense
                
                As
      a % of RevenueFuel
      expense
                
                $
                14,803
                
                
                45.7
                
                
                11.2
                
                $
                8,196
                
                
                42.7
                
                
                11.8
                
                $
                6,607
                
                
                80.6
                
                
                (0.6
                )Commission
      expense
                
                
                6,996
                
                
                21.6
                
                
                5.3
                
                
                3,121
                
                
                16.3
                
                
                4.4
                
                
                3,875
                
                
                124.2
                
                
                0.9Port
      call expense
                
                
                5,313
                
                
                16.4
                
                
                4.0
                
                
                3,759
                
                
                19.6
                
                
                5.3
                
                
                1,554
                
                
                41.3
                
                
                (1.3
                )Stevedore
      and othercargo-related
      expense
                
                
                3,623
                
                
                11.2
                
                
                2.8
                
                
                2,324
                
                
                12.1
                
                
                3.3
                
                
                1,299
                
                
                55.9
                
                
                (0.5
                )Miscellaneous
      voyageexpense
                
                
                1,683
                
                
                5.1
                
                
                1.3
                
                
                1,781
                
                
                9.3
                
                
                2.5
                
                
                (98
                )
                
                (5.5
                )
                
                (1.2
                )Voyage
      expense
                
                $
                32,418
                
                
                100.0
                
                
                24.6
                
                $
                19,181
                
                
                100.0
                
                
                27.3
                
                $
                13,237
                
                
                69.0
                
                
                (2.7
                )
  Voyage
expense increased 69.0% for the three months ended March 31, 2008 as compared to
the same period in 2007, principally due to an increase in fuel and
commission expense.
  The 2.7%
decrease in voyage expense as a percentage of total revenue to 24.6% of total
revenue for the three months ended March 31, 2008 as compared to 27.3% of total
revenue for the same period in 2007 was primarily due to the increase in
revenue, which increased at a rate greater than voyage
expense.
  Commission
expense is based on the amount of revenue. The increase in commission expense
for the three months ended March 31, 2008 as compared to the same period in 2007
was primarily due to the increase in revenue and to a smaller extent an increase
in the rate of commissions paid to TBS Affiliates. Beginning October 1, 2007,
TBS Affiliates were paid an additional 1.25% commission, which increased
commission expense for 2008 by approximately $0.9 million.
 
 The 80.6%
increase in fuel expense was due to an increase in the average price per metric
ton ("MT") and by an increase in consumption. For the three months ended March
31, 2008, the average price per MT increased to $554 per MT as compared to $325
per MT for the same period in 2007. Consumption increased for the three months
ended March 31, 2008 to 26,741 MT from 25,231 MT for the same period in 2007.
Average fuel cost per freight voyage day was $6,233 during the three months
ended March 31, 2008 and $4,318 during the same period in
2007.
  The 55.9%
increase in stevedore and other cargo-related expense for the three months ended
March 31, 2008 as compared to the same period in 2007 was primarily due to a
change in the mix of revenue booked under different shipping terms and increased
cargo volume. During the three months ended March 31, 2008 as compared to the
same period in 2007, more port calls were made to and from the Far East
resulting in higher cargo volumes. Stevedore and other cargo-related cost also
increased as a higher percentage of cargo was booked under "full liner" terms
and a combination of "free-in and free-out" terms. For analysis purposes we
group cargoes into three categories: (1) cargo booked under “free-in free-out"
terms which are shipments that the customer pays all or part of the costs of
loading and unloading, (2) cargo booked under "full liner" terms, which are
shipments where we bear the costs of loading and unloading and (3) a combination
of free-in free-out and full liner terms.
 
 Port call
expense will vary from period to period depending on the number of port calls,
port days and cost structure of the ports called upon.  The 41.3%
increase in port call expense is primarily due to an increase in the number of
port calls, which increased to 248 port calls for the three months ended March
31, 2008 from 183 port calls as compared to the same period in 2007. The
increase is also due to higher average cost per port call, which was due to more
port calls being made at ports with higher cost structures during the three
months ended March 31, 2008 as compared to the same period in
2007.  To a smaller degree, the increase in the number of port days,
which increased to 1,171 port days for the three months ended March 31, 2008
from 944 port days as compared to the same period in 2007, contributed to the
increase in port call expense.
  Table of Contents
 25
 Vessel
expense
 
 Vessel
expense consists of costs we incur to own and maintain our fleet that are not
allocated to a specific voyage, such as charter hire rates for vessels we
charter-in, crew costs, insurance, lube oil, maintenance, and registrations and
fees for vessels we own or control. The following table sets forth the basic
components of vessel expense:
  Three
      Months Ended
                
                
                Three
      Months EndedMarch
      31, 2008
                
                
                March
      31, 2007
                
                
                Increase
      (Decrease)In
      Thousands
                
                As
      a % of Vessel Expense
                
                
                In
      Thousands
                
                As
      a % of Vessel Expense
                
                
                In
      Thousands
                
                PercentageOwned
      vessel expense
                
                $
                16,812
                
                
                71.7
                
                
                $
                13,362
                
                
                76.1
                
                
                $
                3,450
                
                
                25.8Chartered-in
      vessel expense
                
                
                5,128
                
                
                21.9
                
                
                
                3,011
                
                
                17.2
                
                
                
                2,117
                
                
                70.3Controlled
      vessel expense
                
                
                1,494
                
                
                6.4
                
                
                
                1,060
                
                
                6.0
                
                
                
                434
                
                
                40.9Space
      charter expense
                
                
                -
                
                
                -
                
                
                
                124
                
                
                0.7
                
                
                
                (124
                )
                
                (100.0
                )Vessel
      expense
                
                $
                23,434
                
                
                100.0
                
                
                $
                17,557
                
                
                100.0
                
                
                $
                5,877
                
                
                33.5
  The 33.5%
increase in vessel expense for the three months ended March 31, 2008 as compared
to the same period in 2007 was primarily due to an increase in day rates and
number of vessel days for owned/controlled vessels.
 
 The
increase in owned vessel expense for the three months ended March 31, 2008, as
compared to the same period in 2007 was due to an increase in the average
operating expense day rate, which increased $410 per day.   For
the three months ended March 31, 2008 the average operating expense day
rate was $4,803 as compared to $4,393 per day for the same period in
2007.  Average operating expense day rates increased principally due
to increases in the crew and crew related costs and communication
costs. The increase in owned vessel expense was also due to an increase in
the average number of controlled vessels, which increased to an average of 38
vessels during the three months ended March 31, 2008, as compared to an average
of 34 vessels for the same period in 2007.  Increases in our
controlled fleet translated to an increase in vessel days, which are the total
days we operate our controlled vessels.  During the first quarter of
2008, vessel days increased 458 days to 3,500 days from 3,042 days for the
comparable period in 2007.
  Chartered-in
vessel expense consists of charter hire-in costs for vessels under charter
agreements that do not have a purchase option. The increase in chartered-in
vessel expense was due to our chartering-in vessels for 95 more vessel daysfor the three months ended
March 31, 2008, as compared to the same
period in 2007.  We charter-in vessels to meet specific
customer needs, which will vary slightly from quarter to quarter.  For
the three months ended
March 31, 2008, we chartered-in vessels for 239 days as compared to 144
days for the same
period in 2007. The average charter-in rate per day increased $551 per
day to $21,458 per day for the three months ended March 31, 2008 from
$20,907 per day for the
same period in 2007.
  Controlled
vessel expense consists of charter hire-in costs for vessels under charter
agreements that contain a purchase option. During the three months ended March
31, 2008, we incurred charter-in hire costs of $1.5 million compared to $1.1
million for the same period in 2007.  This is charter in hire cost
under the bareboat charters for theLaguna Belle andSeminole Princess both of
which were part of a sale/ leaseback transaction that we entered into the end of
January 2007.
 Table of Contents
 26
 Depreciation
and amortization
 
 The $5.1
million increase in depreciation and amortization expense was due to the growth
in fixed assets as we continue to grow our owned /controlled fleet. Vessel
improvements and other equipment and deferred dry docking costs at March 31,
2008 increased approximately 80% from the March 31, 2007 balances. The size of
our fleet increased to 42 vessels at March 31, 2008 as compared to 34 vessels at
March31,
2007.  The higher average cost of vessels, which for 2008 acquisitions
increased approximately 15% as compared to the average costs of vessels acquired
during the full year 2007, also contributed to the increase in fixed asset
additions and consequently depreciation and amortization
expense.
 
 General
and administrative expense
 
 General
and administrative expense increased primarily due to an increase in salary and
related expenses of $4.6 million, which increased because of higher bonus
accruals, and to a smaller extent higher staff levels and higher stock-based
compensation costs.  We have a discretionary cash bonus program under
which employees may receive an annual cash bonus payment based on our annual
operating performance.  For the three months ended March 31,
2008, we accrued bonuses to our officers and employees of $3.9
million as compared to $0.9 million for the same period in 2007. The
remaining increase in salary and related expenses was due to an increase in
staff levels necessary to manage and grow the business and higher stock-based
compensation costs.  We anticipate that stock-based compensation costs
will increase by approximately $1.9 million in 2008 because of equity grants
made during 2007.
 
 Loss
on sale of vessel
 
 On March
13, 2007, we sold the vesselMaya Princess for $13.0 million and realized a loss of approximately $0.8
million.
 
 Income
from operations
 
 The $33.2
million increase in income from operations for the three months ended
March 31, 2008, as compared to the three
months ended March 31, 2007, was mainly
attributable to an increase in revenue resulting from increased freight rates
and cargo volumes.  The increase in revenue was offset by an increase
in voyage expense, particularly fuel and commission expense, as well as vessel
expense, depreciation and general and administrative expenses. For the same
reasons, our operating margin increased to 38.4% for the three months ended March 31,
2008 from
24.4% for the same period in 2007.
 
 Interest
expense
 
 Interest
expense increased $0.7 million for the first quarter of 2008 as compared to
the same period in 2007, principally due to higher debt levels, higher fees and
amortized deferred financing costs, and a decrease in the valuation of an
interest rate swap contract that did not qualify for hedge accounting. For the three months ended March
31, 2008,ourdebt
levels averaged $270.7 million as comparedto$103.8 million
during the same period in 2007.  Debt levels increased to fund recent
vessel acquisitions and to further leverage borrowings on our owned vessels.
This was partially offset by replacing our higher borrowing costs debt,
specifically the capital lease obligation, with lower borrowing costs
debt.  Further at March 31, 2008, we had approximately $191.9
million of current and future debt fixed at an average rate of 4.08% before bank
margins. Accordingly, our average interest rates decreased to approximately 5.8%
during the first quarter of 2008 as compared to approximately 8.6% during the
same period in 2007.
  Loss
on extinguishment of debt
 
 The $2.3
million loss on extinguishment of debt in 2008 was due to the write-off of
unamortized deferred financing costs in connection with the March 2008
refinancing of our Bank of America syndicated credit
facility.
  Table of Contents
 27
 Balance
Sheet
  Charter
Hire Receivables
  Our gross
charter hire receivables balance at March 31, 2008 and
December 31, 2007 was $43.8 million
($43.3 million net of allowance for doubtful accounts) and $30.6 million ($30.1
million net of allowance for doubtful accounts), respectively. The increase in
receivables was principally due to the timing of payments received on voyages
loading near the end of the period and higher revenue volume.
  In
accordance with our reserve policy, we review the outstanding receivables by
customer and voyage at the close of each quarter and identify those receivables
which are deemed to be at risk for collection and reserve the appropriate
amount. At March 31,
2008, our
reserve totaled $0.5 million, which was approximately the same as the reserve
atDecember 31,
2007.
  Prepaid
Expenses and Other Current Assets
 
 Prepaid expenseand Other Current Assetsat March 31,
2008
decreased $1.0 million from the December 31,
2007
balance. The decrease is primarily due to the collection of a $1.6 million claim
involving the Savannah
Belle.
 
 Other
Commitments
 
 Our
contractual obligations as of March 31, 2008 are shown in the following table
(in thousands):
 
 Total
                  
                  
                  Less
      than 1 year
                  
                  
                  1-3
      years
                  
                  
                  3-5
      years
                  
                  
                  More
      than 5 yearsDebt
      Obligations (1)
                  
                  $
                  336,750
                  
                  
                  $
                  74,068
                  
                  
                  $
                  143,514
                  
                  
                  $
                  76,716
                  
                  
                  $
                  42,452Estimated
      variable interest payments (2 )
                  
                  
                  55,183
                  
                  
                  
                  17,665
                  
                  
                  
                  23,086
                  
                  
                  
                  8,901
                  
                  
                  
                  5,531Operating
      Lease obligations (3)
                  
                  
                  38,245
                  
                  
                  
                  10,058
                  
                  
                  
                  12,486
                  
                  
                  
                  10,890
                  
                  
                  
                  4,811Other
      Purchase obligations (4) (5) (6)
                  
                  
                  164,200
                  
                  
                  
                  76,900
                  
                  
                  
                  87,300Total
      contractual cash obligations
                  
                  $
                  594,378
                  
                  
                  $
                  178,691
                  
                  
                  $
                  266,386
                  
                  
                  $
                  96,507
                  
                  
                  $
                  52,794
 1)
              As
      of March 31, 2008, we had $336.8 million of indebtedness outstanding under
      loans to our subsidiaries that we guarantee, $39.3 million under the $40.0
      million credit facility with Credit Suisse, $75.0 million under the $75.0
      million credit facility with DVB Group Merchant Bank (Asia) Ltd., $35.0
      million under the $35.0 million credit facility with AIG Commercial
      Equipment Finance, $142.5 million under the $142.5 term loan with Bank of
      America and $45.0 million under the $150.0 million credit facility with
      the Royal Bank of Scotland for the new vessel building.  The
      above schedule does not reflect future advances of $105.0 million under
      the $150.0 million credit facility with the Royal Bank of Scotland for the
      new vessel building.
  2)
              Amounts
      for all periods represent our estimated future interest payments on debt
      facilities outstanding at March 31, 2008 based on an estimated annual
      interest rate of 6% which approximates interest rates at March 31,
      2008.
  3)
              Operating
      lease obligations include obligations under seven-year bareboat charters
      for the Seminole
      Princess and the Laguna Belle and office
      leases.
 
 4)
              On
      February 19, 2008, we entered into a memorandum of agreement to purchase
      the Athinoula (renamed Canarsie Princess) for $30.3
      million.  We paid a deposit of $3.0 million on February 19, 2008
      and the balance of $27.3 million is to be paid upon delivery during the
      second quarter of 2008.
 
 5)
              We
      had outstanding purchase obligations at March 31, 2008 to build and
      purchase six new vessels as follows (dollars in
  thousands):
 
 Table of Contents
 28
  Owning
      Subsidiary
                Hull
      Number
                
                Total
                
                
                Less
      than 1 year
                
                
                1-3
      yearsArgyle
      Maritime Corp.
                NYHS200720
                
                $
                14,400
                
                
                $
                7,000
                
                
                $
                7,400Caton
      Maritime Corp.
                NYHS200721
                
                
                21,400
                
                
                
                14,000
                
                
                
                7,400Dorchester
      Maritime Corp.
                NYHS200722
                
                
                28,400
                
                
                
                14,000
                
                
                
                14,400Longwoods
      Maritime Corp.
                NYHS200723
                
                
                21,400
                
                
                
                
                
                
                
                21,400McHenry
      Maritime Corp.
                NYHS200724
                
                
                21,400
                
                
                
                7,000
                
                
                
                14,400Sunswyck
      Maritime Corp.
                NYHS200725
                
                
                28,400
                
                
                
                7,000
                
                
                
                21,400Total
                
                $
                135,400
                
                
                $
                49,000
                
                
                $
                86,400
  Approximately
$105.0 million of the purchase obligation for the new vessels will be funded
under the $150.0 million credit facility with The Royal Bank of Scotland for the
new building program.
 
 6)
              In
      connection with the new building program, we entered into a contract for
      the supervision and inspection of vessels under
      construction.  As of March 31, 2008, commitments under the
      contract were $1.3 million, with $0.4 million due within one year and $0.9
      million due between one and three
years.
  Liquidity
and Capital Resources
 
 Our
principal sources of funds are operating cash flows and long-term bank
borrowings. Our principal uses of funds are capital expenditures to grow and
maintain the quality of our fleet and keep us in compliance with international
shipping standards and regulations, working capital requirements and principal
repayments on outstanding loan facilities and capital lease
obligations.
 
 During
2008, we increased our working capital with the following funding
arrangements:
 
 ·
              In
      March, we amended and restated our existing Bank of America
      Credit Facility.  In connection with the amendment, we increased
      the term loan facility to $142.5 million and the revolving credit facility
      to $125.0 million.  We borrowed $142.5 million under the term loan
      credit facility to pay outstanding principal and interest on the existing
      credit facility, closing costs and fees. The remaining amount of $18.9
      million was used for general corporate purposes.  At March 31,
      2008, we had no borrowings outstanding under the revolving credit
      facility.
  ·
              We
      borrowed an additional $10.0 million during the quarter under our $150.0
      million credit facility with The Royal Bank of Scotland to fund the
      construction payments due on the building of six new multipurpose vessels
      with retractable tweendecks.
  ·
              In
      February, we borrowed $20.0 million available under the Credit Suisse
      credit facility to replenish working capital used to purchase the vessel
      Oneida
      Princess.  We fixed
      the index rate on the notional amount of $20.0 million of this debt at the
      average rate of 3.59% to 2013.
  ·
              We
      borrowed $35.0 million from AIG Commercial Equipment Finance, Inc. to
      replenish operating funds used to purchase the Mohave Maiden, the
      Zuni Princessand
      the Hopi
      Princess.
  ·
              In
      January, we borrowed $75.0 million, under a syndicated credited
      facility by DVB Group Merchant Bank (Asia) Ltd.   The funds
      were used to replenish funds used to exercise a purchase option for seven
      tweendeck vessels chartered-in under a sale-leaseback arrangement, to
      fund additional vessel acquisitions and for general corporate
      purposes.  In addition to replacing the high interest cost
      capital lease obligation with lower borrowing costs debt, we fixed the
      index rate at 2.92% for the entire term of the credit
      facility.
   Table of Contents
 29
 Investing
Activities 2008
  Using
capital from operations and borrowings, we made the following acquisitions and
capital improvements:
  Three
      Months Ended March 31,2008
                
                
                2007(in
      millions)Vessels
      purchased
                
                $
                148.4
                
                
                $
                -Take
      over costs
                
                
                1.2
                
                
                
                0.0Construction
      in progress
                
                
                22.4
                
                
                
                44.5Deferred
      drydocking costs
                
                
                3.1
                
                
                
                4.9Vessels
      improvements and vessel equipment
                
                
                2.8
                
                
                
                2.8Other
      fixed asset additions
                
                
                2.3
                
                
                
                1.0180.2
                
                
                
                53.2Less
      Vessel deposits paid in 2007 for vessels delivered in 2008
                
                
                (14.8
                )Total
      Vessel acquisitions / capital improvement
                
                $
                165.4
                
                
                $
                53.2
  ·
              We
      acquired six vessels that were delivered during the first quarter of 2008
      for a total purchase price of $148.4 million, including $14.8 million paid
      in 2007.  In connection with these vessels and others that we
      recently acquired, we incurred takeover costs of $1.2
      million.  We used cash from borrowings and operations to fund
      the acquisitions.
 
 ·
              In
      connection with our construction program to build six newly designed
      multipurpose vessels with retractable tweendecks we made payments to the
      ship building yard and incurred capitalized costs totaling $22.4 million.
      These ships were designed by a TBS team drawn from all phases of our
      operation specifically to optimize our efficient cargo transportation in
      our trade lanes, support the requirements of our loyal customer base and
      enhance the growth of our business.  Two of the vessels are
      schedule for delivery in 2009, and four vessels are scheduled for delivery
      in 2010. The project is being funded from our $150.0 million credit
      facility with The Royal Bank of Scotland and operating cash
      flow.
  ·
              In
      the first quarter 2008 we drydocked five vessels for a total cost of $3.1
      million, including four vessels we acquired that were drydocked by us for
      the first time for a cost of $0.9
million.
 
 ·
              Vessel
      improvements and vessel equipment additions during the three months ended
      March 31, 2008 totaled $2.8 million, including $1.0 million in steel
      renewals.
 
 We made a
deposit of $3.0 million for the Canarsie Princess (formerly
the Athinoula) which is
scheduled to be delivered in the second quarter of 2008.
 
 Our
business is capital intensive and its future success will depend on our ability
to maintain a high-quality fleet through the ongoing maintenance of our
currently owned ships and the acquisition of newer ships. These acquisitions
will be principally subject to management's expectation of future market
conditions as well as our ability to acquire appropriate ships on favorable
terms.
 
 We
believe that our current cash balance, as well as operating cash flows and
available borrowings under our existing credit facilities, will be sufficient to
meet our liquidity needs for the next year.
 
 Financing
Activities 2007
 
 During
2007, our operating capital was supplemented with:
  ·
              In
      January 2007, we amended the Bank of America credit facility and borrowed
      an additional $5.0 million under the Bank of America Term Credit
      Facility.  In March 2007, we drew down $30.0 million under the
      Bank of America revolving credit
facility.
  ·
              We
      borrowed an initial amount of $30.0 million under our $150.0 million
      syndicated term loan credit facility led by The Royal Bank of
      Scotland to partially finance the first installment due upon the signing
      of contracts to build six new multipurpose vessels with retractable
      tweendecks.
  ·
              During
      the first quarter, we made repaid $70.0 million of the Bank of America
      revolving credit facility and made $4.8 million in other debt principal
      payments.
 
 Table of Contents
 30
 Investing
Activities 2007
 
 Funds
available from borrowings and operating capital were used for:
  ·
              vessel
      improvements and vessel equipment additions totaling $2.8 million and
      other asset additions consisting primarily of grabs and computer
      equipment totaling $1.0 million;
  ·
              drydock
      costs for the first quarter totaling $4.9 million;
  and
  ·
              starting
      our construction program to build six newly designed multipurpose vessels
      with retractable tweendecks at a cost of $44.5 million, which is comprised
      of $42.0 paid to the Chinese ship yard $2.0 million in fees and
      capitalized interest and $0.5 million for design and professional
      fees.
 
 Dividend
      Policy
 
 We have
not declared or paid and do not anticipate declaring or paying any cash
dividends on our common shares in the foreseeable future. The provisions of some
of our debt instruments and related loan agreements prevent some of our
subsidiaries from paying dividends to TBS International Limited, which may
restrict our ability to pay dividends on our common shares. The timing and
amount of future cash dividends, if any, would be determined by our board of
directors and would depend upon our earnings, financial condition, cash
requirements and obligations to lenders at the time.
 
 Pursuant
to Bermuda law, we cannot declare or pay a dividend, or make a distribution out
of contributed surplus, if there are reasonable grounds for believing that we
are, or after the payment would be, unable to pay our liabilities as they become
due, or that the realizable value of our assets would thereby be less than the
aggregate of our liabilities, our issued share capital and our share premium
accounts.
 
 Because
we are a holding company with no material assets other than the stock of our
subsidiaries, our ability to pay dividends will depend on the earnings and cash
flow of our subsidiaries and their ability to pay dividends to us.
  Summary
of Critical Accounting Policies
 
 The
Company's discussion and analysis of its results of operations, financial
condition, and liquidity are based upon the Company’s consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States of America. The preparation of these
financial statements requires the Company to make estimates and judgments that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period. The
Company bases its estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances. Actual
results may materially differ from these estimates under different assumptions
or conditions.
 
 Critical
accounting policies are those that reflect significant judgments or
uncertainties and could result in materially different results under different
assumptions and conditions. We believe that there have been no material changes
in our critical accounting policies from those disclosed in our Form 10-K filed
with the Securities and Exchange Commission on March 14, 2008.
  New
Accounting Pronouncements
  In March
2008, the Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards ("SFAS") Statement No. 161, Disclosures about Derivative
Instruments and Hedging Activities - an amendment of FASB Statement No.
133 Accounting for Derivative
Instruments and Hedging Activities("SFAS 161"). SFAS 161
changes the disclosure requirements for derivative instruments and hedging
activities requiring enhanced disclosures about: how and why an entity uses
derivative instruments; how derivative instruments and related hedged items are
accounted for under Statement 133 and its related interpretations; and how
derivative instruments and related hedged items affect an entity's financial
position, financial performance, and cash flows. The Statement intends to
enhance the current disclosure framework in Statement 133 by requiring:
objectives for using derivative instruments and related hedged items be
disclosed in terms of underlying risk that an entity is trying to manage;
tabular presentation of the fair values, gains and losses of derivative
instruments; disclosure of credit-risk-related contingent features; and cross
referencing within financial statement footnotes. The Statement is effective for
fiscal years and interim periods beginning after November 15, 2008, with early
application encouraged. The
Company has early adopted SFAS 161 in the first quarter of 2008; refer to Note 8
Derivative Financial Instruments for adopted disclosures.
 Table of Contents
 31
 In
December 2007, the FASB issued SFAS Statement No. 160 Noncontrolling Interests in
Consolidated Financial Statements - an amendment of ARB (Accounting Research
Bulletin) No. 51("SFAS 160"). The
Statement establishes accounting and reporting standards for entities (excluding
not-for-profit organizations) with outstanding noncontrolling interest in one or
more subsidiaries or that deconsolidate a subsidiary. The objective of SFAS 160
is to improve the relevance, comparability and transparency of financial
information that a reporting entity provides in its consolidated financial
statements. The standards require: ownership interests in subsidiaries held by
parties other than the parent be clearly identified and presented within equity
but separate from the parent's equity in the consolidated statement of financial
position; net income attributable to the parent and the noncontrolling interest
be identified and presented on the face of the consolidated statement of income;
changes in a parent's ownership interest while the parent retains its
controlling financial interest in its subsidiary be consistently accounted for
as equity transactions; any retained noncontrolling equity investment in a
former deconsolidated subsidiary be initially measured at fair value and that
any gain or loss on the deconsolidation of a subsidiary be measured using fair
value of the noncontrolling equity investment rather than the carrying amount of
that retained investment; and, entities provide sufficient disclosures that
clearly identify and distinguish between the interests of the parent and
noncontrolling owners. The Statement is effective for fiscal years, and interim
periods within those fiscal years, beginning on or after December 15, 2008. The
adoption of SFAS 160 is not expected to have a material impact on the Company's
consolidated financial statements.
  In
December 2007, the FASB issuedSFAS Statement No. 141 (revised
2007),Business
Combinations ("SFAS 141(R)").  This statement establishes
principles and requirements for how an acquiring entity measures and recognizes:
the identifiable assets acquired; the liabilities assumed; any noncontrolling
interest in the acquiree; goodwill acquired, or a gain from a bargain purchase,
in its financial statements. SFAS 141(R) sets forth disclosure criteria to
enable a better understanding of the nature and effects of a business
combination. The Statement was revised to improve the relevance, and
comparability of financial statement information about business combinations and
their effect. This Statement applies prospectively to business combinations for
which the acquisition date is on or after the first annual reporting period
beginning on or after December 15, 2008. The adoption of SFAS 141(R) is not
expected to have a material impact on the Company's consolidated financial
statements.
  In
February 2007, the FASB issued SFAS Statement No. 159 TheFair Value Option for Financial
Assets and Financial Liabilities, Including an amendment of FASB Statement No.
115 ("SFAS 159").  SFAS 159 provides all entities with the
option to measure many financial instruments and certain other items at fair
value. If a company elects the fair value option for an eligible item, then it
will report unrealized gains and losses on those items at each subsequent
reporting date. SFAS 159 is effective for fiscal years beginning after November
15, 2007. Upon adoption, we did not elect the fair value option for any items
within the scope of SFAS 159 and, therefore, the adoption of SFAS 159 did not
have an impact on our consolidated financial statements.
  In
September 2006, the FASB issued SFAS No. 157 "Fair Value Measurements," (SFAS
157), which is effective for fiscal years beginning after November 15, 2007 and
for interim periods within those years.  This statement defines fair
value, establishes a framework for measuring fair value and expands the related
disclosure requirements.  This statement applies under other
accounting pronouncements that require or permit fair value
measurements.  The statement indicates, among other things, that a
fair value measurement assumes that the transaction to sell an asset or transfer
a liability occurs in the principal market for the asset or liability or, in the
absence of a principal market, the most advantageous market for the asset or
liability. SFAS 157 defines fair value based upon an exit price
model.
  Relative
to SFAS 157, the FASB issued FASB Staff Positions (FSP) 157-1 and 157-2. FSP
157-1 amends SFAS 157 to exclude SFAS No. 13, "Accounting for Leases," (SFAS 13)
and its related interpretive accounting pronouncements that address leasing
transactions, while FSP 157-2 delays the effective date of the application of
SFAS 157 to fiscal years beginning after November 15, 2008 for all nonfinancial
assets and nonfinancial liabilities that are recognized or disclosed at fair
value in the financial statements on a nonrecurring basis.
  We
adopted SFAS 157 as of January 1, 2008, with the exception of the application of
the statement to non-recurring nonfinancial assets and nonfinancial
liabilities.  Non-recurring nonfinancial assets and nonfinancial
liabilities for which we have not applied the provisions of SFAS 157 include
those measured at fair value in goodwill impairment testing, indefinite lived
intangible assets measured at fair value for impairment testing, asset
retirement obligations initially measured at fair value, and those initially
measured at fair value in a business combination.
  Table of Contents
 32
 Item
3.Quantitative and Qualitative
Disclosure About Market Risk
 
 Interest
Rate Risk:
 
 We are
exposed to various market risks associated with changes in interest rates
relating to our floating rate debt. To manage borrowing costs the Company uses
derivative instruments, interest rate swaps, to effectively convert floating
rate debt to fixed rate debt.   All derivative contracts are for
non-trading purpose and are entered into with major reputable financial
institutions thereby minimizing counterparty risk.
  At March
31, 2008 we had $336.8 million of floating debt outstanding.  In order
to hedge the interest rate risk we entered into interest rate swap contracts
that hedged approximately 51% of our outstanding debt at March 31, 2008. At
March 31, 2008, we had interest rate swap contracts to pay an average fixed rate
of 4.08% before loan margin and receive a floating rate of interest on the
notional amount of $171.9 million. The fair value of interest rate swap
agreements at March 31, 2008 was a liability of $6.9 million.  We also
entered into swap agreements that will be effective June 29, 2008, fix our
interest rate at 4.83%, before loan margin, on the notional amount of $20.0
million of future debt that is effective June 29, 2008.  Interest loan
margins over LIBOR at March 31, 2008 were 2.25%, 1.75%, 1.05%, 2.50% and 1.75%
on $142.5 million, $45.0 million, $39.3 million, $75.0 million, and $35.0
million of debt, respectively.
  As an
indication of the extent of our sensitivity to interest rate changes, an
increase in the LIBOR rate of 100 basis points would have decreased our net
income and cash flows for the three months ending March 31, 2008 by
approximately $0.4 million based upon our net debt level at March 31, 2008,
which was $164.9 million after deducting $171.9 million of debt hedged with
interest rate swaps.
 
 Foreign
Exchange Rate Risk:
  We
consider the U.S. dollar to be the functional currency for all of our entities.
Our financial results are affected by changes in foreign exchange rates. Changes
in foreign exchange rates could adversely affect our earnings. We generate all
of our revenues in U.S. dollars, but incur approximately 8.6% of our operating
expenses in currencies other than U.S. dollars. For accounting purposes,
expenses incurred in currencies other than U.S. dollars are converted into U.S.
dollars at the exchange rate prevailing on the date of each transaction.At March
31, 2008,
approximately 12.7% of our outstanding accounts payable were denominated in
currencies other than U.S. dollars.
 
 Item
4.Controls and
Procedures
 
 As of March 31, 2008,
an evaluation was performed under the supervision and with the participation of
the Company's management, including the Chief Executive Officer ("CEO"), Chief
Financial Officer ("CFO"), and Chief Accounting Officer ("CAO") of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange
Act). Based on that evaluation, the Company's management, including the CEO, CFO
and CAO, concluded that the Company's disclosure controls and procedures were
effective as of March 31, 2008. There have been no changes in the Company's
internal control over financial reporting that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting during the period covered by this quarterly report.
 
 
 PART
II
 
 Item 1.Legal
Proceedings
 
 The
Company is periodically a defendant in cases involving personal injury and other
matters that arise in the normal course of business. While any pending or
threatened litigation has an element of uncertainty, the Company believes that
the outcome of these lawsuits or claims, individually or combined, will not
materially adversely affect the consolidated financial position, results of
operations or cash flows of the Company. During the three months ended March 31,
2008, there have been no material changes to legal proceedings from those
considered in our Annual Report on Form 10-K for the year ended December 31,
2007.
 Table of Contents
 33
 Item 1A. Risk Factors
 
 The risk
factors included in our Form 10-K are hereby incorporated in Part II,
Item 1A of this Form 10-Q. The risk factors and other information included
in our Form 10-K should be carefully considered prior to making an investment
decision with respect to the Company’s stock. The risks and uncertainties
described in our Form 10-K are not the only ones we face. Additional risks and
uncertainties not presently known to us or that we currently deem immaterial
also may impair our business operations. If any of the risks occur, our
business, financial condition, operating results and cash flows could be
materially adversely affected and the trading price of our common stock could
decline.
 Item
2.Unregistered Sales of Equity
Securities and Use of Proceeds
 
 
 None.
 Item 3. Defaults Upon Senior
Securities
 
 
 None.
 Item
4.Submission of Matters to a Vote of
Security Holders
 
 
 During
the first quarter of 2008, no matters were submitted to a vote of security
holders through the solicitation of proxies or otherwise.
  Item
5. Other
Information
 Item
6.  Exhibits
 
 
 3.1
                Memorandum
      of Association (a)
 
 3.2
                Bye-laws
      (a)
  10.1
              Credit
      Agreement dated March 26, 2008, by and among Albemarle Maritime Corp,
      Arden Maritime Corp, Avon Maritime Corp, Birnam Maritime Corp, Bristol
      Maritime Corp, Chester Shipping Corp, Darby Navigation Corp, Dover
      Maritime Corp, Elrod Shipping Corp, Exeter Shipping Corp, Frankfort
      Maritime Corp, Glenwood Maritime Corp, Hansen Shipping Corp, Henley
      Maritime Corp, Hudson Maritime Corp, Montrose Maritime Corp, Oldcastle
      Shipping Corp, Rector Shipping Corp, Remsen Navigation Corp, Sheffield
      Maritime Corp, Sherman Maritime Corp, Sterling Shipping Corp, Stratford
      Shipping Corp, Vernon Maritime Corp, Windsor Maritime Corp, and TBS
      International Limited, as guarantor with Bank of America (Lender).
      (b)
  10.2
              2005
      Equity Incentive Plan, Form of Restricted Share Award Agreement.
      (b)
  10.3
              2005
      Equity Incentive Plan, Form of Share Unit Award Agreement.
    (b)
  10.4
              First
      Amendment to June 29, 2005 Letter Agreement Granting Restricted Shares to
      Ferdinand V. Lepere. (b)
  10.5
              First
      Amendment to Share Unit Award Agreement with Martin Levin dated August 20,
      2007. (b)
  10.6
              Credit
      Agreement, dated January 16, 2008, by and among Bedford Maritime Corp,
      Brighton Maritime Corp, Columbus Maritime Corp, Hari Maritime Corp,
      Hancock Navigation Corp, Prospect Navigation Corp, and Whitehall Marine
      Transport Corp Corp. as Borrowers, and TBS International Limited, as
      guarantor with DVB Group Merchant Bank (Asia) Ltd. as Facility Agent,
      Security Trustee and a Lender,  The Governor and Company of the
      Bank of Ireland, as Payment Agent and a Lender, and Natixis, as a
      Lender. (d)
  10.7
              Credit
      agreement, dated February 29, 2008 by and among Amoros Maritime Corp.,
      Lancaster Maritime Corp. and Chatham Maritime Corp. as borrowers, and TBS
      International Limited as Parent guarantor and AIG Commercial Equipment
      Finance, Inc., as
  lender.(e)
  10.8
              Lease
      agreement, dated January 1, 2008, between Joseph E. Royce, Landlord and
      TBS Shipping Services Inc., tenant for premises located at 612 East Grassy
      Sprain Road, Yonkers, New
      York.(f)
  
 31.1
              Certification
      of the Chief Executive Officer pursuant to Rules 13a-15(a) and 15d-15(a)
      under the Securities Exchange Act of 1934, as adopted pursuant to Section
      302 of the Sarbanes-Oxley Act of 2002. (b)
  31.2
              Certification
      of the Chief Financial Officer pursuant to Rules 13a-15(a) and 15d-15(a)
      under the Securities Exchange Act of 1934, as adopted pursuant to Section
      302 of the Sarbanes-Oxley Act of 2002. (b)
  31.3
              Certification
      of the Chief Accounting Officer pursuant to rules 13a-15(a) and 15d-15(a)
      under the Securities Exchange Act of 1934, as adopted pursuant to Section
      302 of the Sarbanes-Oxley Act of 2002. (b)
  32
              Certification
      of Chief Executive Officer, Chief Financial Officer and Chief Accounting
      Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
      906 of the Sarbanes-Oxley Act of 2002. (b)
(c)
 ________
 
 
 (a)
                Incorporated
      by reference from the Quarterly Report on Form 10-Q filed on October 12,
      2005.
 
 (b)
                Filed
      herewith.
 
 (c)
                Pursuant
      to SEC Release No. 33-8212, this certification will be treated as
      "accompanying" this Quarterly Report on Form 10-Q and not "filed" as part
      of such report for purposes of Section 18 of the Securities Exchange Act,
      as amended, or otherwise subject the liability of Section 18 of the
      Securities Exchange Act, as amended, and this certification will not be
      deemed to be incorporated by reference into any filing under the
      Securities Act of 1933, as amended, or the Securities Exchange Act, as
      amended, except to the extent that the registrant specifically
      incorporates it by reference.
 
 (d)
                Incorporated
      by reference from Exhibit 10.38 to Form 10-K for the fiscal year ended
      December 31, 2007 filed on March 14,
2008.  (e)
                Incorporated
      by reference from Exhibit 10.39 to Form 10-K for the fiscal year ended
      December 31, 2007 filed on March 14,
2008.




(f)
            Incorporated
      by reference from Exhibit 10.40 to Form 10-K for the fiscal year ended
      December 31, 2007 filed on March 14,
2008.




Table of Contents
 35











TBS
INTERNATIONAL LIMITED & SUBSIDIARIES





Signatures








Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this Quarterly Report on Form 10-Q to be signed on its behalf
by the undersigned, thereunto duly authorized, on the 9th day of
May 2008.


TBS
      INTERNATIONAL LIMITED(Registrant)By:
            /s/ Joseph E.
      RoyceJoseph
      E. Royce
              President
      and Chief Executive OfficerBy:
            /s/ Ferdinand V.
      LepereFerdinand
      V. Lepere
              Senior
      Vice President, Chief Financial OfficerBy:
            /s/ Frank
      PittellaFrank
      Pittella
              Controller,
      Chief Accounting Officer